Lumos Diagnostics (ASX: LDX) (OTCPK: LDXHF) shares are up 25% today. LDX shares are up that amount on the back of two announcements. The question then becomes well, are those announcements worth that extra 25%? It’s not obvious that they are. But then Lumos has been a particularly volatile share of late. The market does seem to be bidding it up on every piece of even halfway decent news. Often enough to then more gradually fall back.
One piece of news is the grant of a patent: “a core patent covering the camera technology used in its reader platform has been granted for Europe and Japan.” and, well, yes. Given that the patent was already granted for the US and Australia this isn’t a total surprise. The other is about Holland: “Lumos Diagnostics (ASX: LDX), (“Lumos” or the “Company”) a leader in rapid, point-of-care (POC) diagnostic technologies, has signed an agreement with Henry Schein B.V. for the FebriDx® point-of-care test. The agreement further expands the distribution of FebriDx through Henry Schein’s Medical business to include the Netherlands.” And again, well, yes. A 25% share price rise is $10 million. Is distribution in Holland worth $10 million? Maybe, matter of opinion.
Lumos Diagnostics share price from Google Finance
We can see that Lumos share price volatility there. That spike in July for LDX: Lumos Diagnostics shares are up 500% today. LDX stock is up as a result of the FDA authorising their FebriDx test for use in the United States. Yes, this is important news, this will make a difference to the company. But 500%? It is possible to think that that might be a little bit of an over-reaction.” And it did turn out to be an over reaction for the Lumos price: “shares are down 50% from their peak. LDX shares have fallen really for no other reason than that they got much, much, too excited about the FDA approval of the diagnostic test. It is entirely true that without FDA approval you can do pretty much nothing in the American market. It's also true that the Americans can and will test for everything - thus FDA approval for a diagnostic test opens up one of the world's largest markets.
But the earlier reaction of Lumos shares to that news was, as we said, more than a little over enthusiastic.“
We do not, of course, claim omniscience. But we can spot febrile excitement often enough. We’ve also discussed Lumos here and here. Our basic view is that there’s nothing wrong at all. It’s just that the shareholder base now includes - and potentially includes - a significant number of traders looking for capital price action. Therefore the share price reaction to news is likely going to be overdone. With, often enough we expect, a slower reversal.