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Why Liquidity Services, Inc. Fell on Monday

By Anders Bylund - Sep 28, 2015 at 2:23PM

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The stock bounced wildly on low volume and no news.

What: Shares of surplus goods auctioneer Liquidity Services (LQDT 2.54%) fell as much as 11.7% in Monday's trading session. Just before 2 p.m. Eastern, the stock sprang back to life, erasing all but a 1.7% overnight drop in a matter of minutes. But that bounce was short-lived, and Liquidity Services returned to a double-digit loss very quickly.

So what: All of these intriguing moves took place on low trading volume and in the absence of market-moving news. The stock started this week's market action from a slightly elevated position, having announced a significant asset sale on Friday, but today's drop is far larger than Friday's 3.3% surge.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Now what: Liquidity Services set fresh multiyear lows amid the looping swings of today's trading moves. The stock hasn't seen these prices since March, 2009.

There's a bit of irony at work here. A company named for its ability to turn unwanted assets into liquid cash also happens to be a thinly traded micro-cap stock. The stock is not particularly liquid at all. And when trading volumes drop, stock prices become unstable. Under these circumstances, it doesn't take much to achieve large changes to a small-cap's market value.

On an average trading day, you'll find only 300,000 to 400,000 Liquidity Services shares trading hands. Much of the stock's trading action takes place in the form of minuscule 100-share lots. According to Nasdaq records, that temporary mid-afternoon bounce today was based on the sale of just 400 shares.

Chalk this one up to microcap volatility. The smaller they come, the wilder they bounce.

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Liquidity Services, Inc.
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