GD Culture Group (NASDAQ: GDC) was an interesting little tale back at the beginning of this month. As we said back then about GDC stock there was really no reason at all why it should jump 1,600% in one day. Except the obvious fact that it did jump that much intraday before falling back to only 800% up on the full trading day.
We assigned it to just one of those things. There has been a wave of excitement about small cap Chinese tech and financial stocks recently. Somewhere between rumours of great deals and high values to manias of nothing but a momentum trade on such rumours. Well, OK, such things happen in odd corners of the market now and again.
But there's one other thing here. GDC used this bump in the stock price to raise capital. Nothing wrong with that at all. Well, probably nothing wrong with that. What we need to know to be able to evaluate this is which came first? The plan to raise capital? Or the jump in the stock price? One way around this is just entirely sensible business planning. The other way around it's highly illegal. No, we don't know which way around it is either.
GD Culture Group stock price from NASDAQ
Before that leap in the stock price GDC had some $10,000 in cash and $75,000 in quarterly revenues. Yes, those are thousands, not millions. The stock was trading in a very generous $2.50 to $3.00 range. Then came that 1,600% to 800% stock price surge. And then came the issuance of new stock. They were able to get away a combination of stock and warrants to the tune of 844,000 units at a price of $8 and change. That is, of course, remarkably well above the previous trading range. The net proceeds were in the $9 million range. That's really a very good capital raise.
Of course, as a result, GDC is now worth more than it was. That cash is inside the company and was value accretive to extant shareholders - sales of stock above prevailing prices are such, not dilutive.
But then which came first? Having a small company that could do with more capital, seeing that the price has soared for whatever reason and then issuing stock, that's just good business. Making the stock soar in order to be able to issue stock is highly illegal market manipulation. No, we don't know either. But it is the question that needs answering before any trades in GDC. Are we dealing with savvy management able to take advantage of market conditions? Or those creating market conditions?