During 2018, there has been a steady news stream from BrainCool. Despite this, the share price have gone down for the better part of the year moving from 8.77 SEK in the first week of January to the low point at 4.9 SEK in July. Since then it has recovered and during August and September held ground between 6 and 7 SEK. Then suddenly on October 1th, a rally started and in three days, it jumped no less than 79 %, from 7.0 SEK to 12.4 SEK.
Volumes during these rally days were high as well. In the days prior, trading volumes were between 39.000 and 182.000. During the first three days of last week, trading volume reached 4.3 million shares in total. This is approx. 10 times the daily level. On Thursday and Friday, the share then fell back as investors were cashing in on the sudden upwards move, closing at 11.6 SEK before the weekend.
Reasons for the rally
There seems to be no obvious reason for this rally. The company did announce a small order of 0.5 MSEK and an expected patent approval this week, though. The order is the first of its kind selling five Cooral systems for preventing oral mucositis to a distributor in the Middle East. The size of the order in itself does not justify a rally, and most important, it came after the peak of the rally. The day before, at the peak of the rally, BrainCool made an announcement as well, telling that the company expects a patent approval in China for its Cooral System.
There were no announcements that set off the rally. BrainCool is about to hand out an spin-off (PolarCool) to the shareholders, and Tuesday (last week) was the last day shareholders could buy shares with the right to become owner of PolarCool. The market valued this to 0.39 SEK (5.6 %), indicating that the main value of BrainCool stays within the company. I do not find an explanation for the rally in a large number of would-be-investors waiting to invest in order to avoid becoming owner of PolarCool credible.
My own explanation of the rally has to do with people trading in Spotlight (formerly: Aktietorget) companies, and with the image of the BrainCool share. In other words, it has nothing to with the company and its achievements; it is an investor thing or product of market psychology – or whatever we like to call it.
In general, volumes on Spotlight are low. The turnover on Friday before the rally were 53,447 shares – this is approximately 375.000 SEK. A few large orders, then, can have great effect on the share price. Therefor the Spotlight market in itself holds opportunities for high volatility. This attracts a number of low-volume, high-risk traders. If you succeeded in anticipating the rally and bought around 9 SEK on Tuesday and sold around 12 on Wednesday, you could make 30-35 % on your investment. Knowing this, a price moving upwards will call in investors – and they moves the price even further up.
When this works especially well in the case of BrainCool, it has to do with image of the share. A year ago (more or less), the Swedish newspaper Dagens Industri made a list of potential 1000 % shares. This was a list of shares with a huge potential (and risk) for the long-term investor. BrainCool was on that list. Given this image of a share with a great potential, one could think, somewhat reduces the risk for those jumping on the rally-train, and thus enhancing it.
Achievement of BrainCool
With this said I would point to the fact that BrainCool so far have made many and important steps toward the market in 2018. To sum up: Four patents, a design prize, distributor-agreements, market approval in Mexico and USA (FDA-approval), systems sold in Middle East, Sweden, Mexico – and the spin off, PolarCool.
Looking ahead, I think the main driver of the share will be sales. There will be a number of important news on scientific projects in the next months that will provide data to support sales. BrainCool is right now transforming from a company developing to a company selling. This transition takes time and I hope not that we see the same bumps on the way as Dignitana has experienced.
There is a presentation (in Swedish) of PolarCool here. The IPO price will be 2 SEK and the subscription period will be from the 9th to the 23th this month.