Pointerra Ltd (ASX: 3DP) (OTCPK: PTRRF) shares are 16% down. 3DP shares are therefore back down to where they started before all the recent excitement. This is more than just reversion to the mean after excitement. This is management taking advantage of the excitement to raise some more capital - a perfectly sensible thing to do of course but it does rather impact on that lovely run up of the share price.
As we remarked before about Pointerra: “Pointerra (ASX: 3DP) (OTCPK: PTRRF) shares are up 95% this morning. 3DP shares have leapt on the back of a contract win announcement. But it's possible to think that this is ever so slightly overdone, too cooked. Excitement is indeed excitement but it's possible for share prices to rise above objective value when the market does get all interested.” That excitement was all about a contract that maybe raised future annual revenues by 50%. Which is nice and good but perhaps not worth 100% on the corporate valuation.
As we also noted about 3DP: “But our view here is that the quarterly report gives everyone a chance to rethink that possible overreaction from last week. Yes, the new contract is good, but not that good - which is why the 3DP shares have given up 40% of that surge already. While the new contract is indeed large it's also for a number of years and so the impact in any one year is less than at first it might have seemed.
Such rethinks do happen and a lot more often than naive investors think. Market over reactions are not rare that is. As here at Pointerra. We're not saying there's anything wrong - just that the first reaction was too much.”
Pointerra share price from Google Finance
There’s the one other issue here as well as that reversion: “Placement and SPP to raise up to $3.5 million Highlights: Placement to institutional, professional and sophisticated
investors raises $2.0 million at an issue price of $0.12 per share Planned Share Purchase Plan (SPP) to eligible shareholders to raise up to an additional $1.5 million at the same price as the Placement”.
That’s, well, that’s not good really, for as we can see the current price is below that placement price. The lesson here being that yes, small companies just breaking through can have quite lovely surges upward in price when they do make one of those breakthroughs. But those surges tend not to last. Partly simply because people get less excited but also because competent management will often try to raise more capital off the back of a share price surge. We can’t blame them for this, that’s the point of being a publicly listed company after all. But it does so often put a cap on share price surges.