Lumos Diagnostics (ASX: LDX) (OTCPK: LDXHF) shares are down 37% on the day. LDX shares fell on no other grounds than that they had risen too much. Atomo Diagnostics (ASX: AT1) (OTCPK: AMOSF) are down 29% for exactly the same reason. The two companies are also closely linked but the real reason for the fall today is simply that they rose too far and too fast the past couple of days. Yes, the news that drove them up was good news but it wasn't that good news.
The news that drove Lumos shares was: “Lumos Diagnostics (ASX: LDX) (OTCPK: LDXHF) 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.” LDX then doubled again after that. From Atomo: “As to why Atomo is following Lumos up, there's this announcement: “It is noted however that on 3 July 2023, Atomo's partner, Lumos Diagnostics (ASX: LDX) announced to the market that it has received US FDA approval for its FebriDx test, which utilises Atomo's user friendly integrated Pascal test platform, making Atomo a critical supplier to Lumos for this approved product. It is possible that the price movement in AT1 could be attributed to LDX's announcement.” Other than that management don't know of any reason for the 140% rise in AT1 shares.”
All deserving of a share price rise but 1,000% in Lumos and 140% in Atomo was probably overdoing it. As it turned out:
Lumos Diagnostics share price from ASX
Atomo Diagnostics share price from ASX
And as we did say about Lumos: “We would probably say that perhaps it isn't worth 500% - given that it is legal to sell already in much of the rich world. On the other hand yes, the Americans use more diagnostics tests than anyone else, by a long, long, shot and it might well be worth that $16 million. So the valuation is all a bit swings and roundabouts really.”
And as we also said about Atomo: “It's also difficult to see what the revenue gain to Atomo is of the FDA approval. So, we'll retreat to the idea that clearly there's something of a frenzy going on here. And frenzies do end and prices fall back when they do. But it's never really possible to determine when that's going to happen - nor what price will be reached before it does.”
Note that our prediction was nothing at all to do with medicine, the FDA or testing products. Purely an observation on how stock markets can get well ahead of themselves when in one of these pricing frenzies. This is a general lesson, not one limited to Lumos and Atomo.
