What happened
Shares of Monday.com (MNDY 4.16%) were up a whopping 71.4% in August, according to data provided by S&P Global Market Intelligence. The company reported stellar financial results on Aug. 17, providing much of the month's outperformance. However, to contextualize this 71% jump, we may need to look at who owns this stock.
So what
Monday.com is a cloud-based project-management software company, specializing in no-code and low-code applications, which makes it easy to use. The company just went public in June, dividing the company into almost 44 million shares. However, almost 81% of shares were still held by insiders and early investors. The company only offered 3.7 million shares to the general public, and there are only 7.5 million shares available for trading, according to MarketWatch.
Image source: Getty Images.
On Aug. 17, Monday.com reported financial results for the second quarter of 2021 that showed high revenue growth and exceeded analyst expectations. Because of this, many analysts initiated coverage of the stock, giving it a buy rating. In turn, this created demand from retail investors.
Retail investors rushed to buy Monday.com stock. But there simply aren't many shares available for trading. While the stock should be up some considering its strong Q2 results, it likely wouldn't be up this much if it weren't for this low-supply dynamic.
Now what
If it's true that the low supply of Monday.com shares has partly caused the sharp increase in the stock's price, then there's a near-term factor that could bring it back down. A number of shares are subject to what's called a lockup period -- a time frame where insiders aren't allowed to sell. Between the expiration of the lockup period and stock options that will vest thanks to its initial public offering, a lot of shares could become available for trading in the coming months.
This could create some volatility with Monday.com stock in the near term. However, investors should remember that volatility isn't a long-term risk. Stocks can bounce up and down, but if a business performs well over time, then the stock should trend higher as well. For now, it's up to this young company to prove that it can continue to beat Wall Street's expectations.
