I hate to be a wet blanket. There’s a whole lot of buzz and enthusiasm surrounding San Francisco-based technology firm Marin Software (NASDAQ:MRIN) stock.
Source: Gil C / Shutterstock.com
Traders may be partying like there’s no tomorrow, but every party must come to an end, sooner or later.
There’s been strong upward momentum in the share price, and the daily trading volumes have been unusually high. So, it’s understandable that meme-stock traders and short squeezers are licking their chops.
Yet, cautious traders should consider whether the risk-to-reward profile of MRIN stock is favorable now. After all, meme-stock stories don’t always have a happy ending.
Moreover, I’m concerned that some folks are trading Marin Software shares without even knowing the basic facts about the company. As they say, you should “know what you own.” A little bit of knowledge can prevent major problems later on.
A Closer Look at MRIN Stock
For the vast majority of the past 12 months, MRIN stock was stuck in a range between $1 and $2. Moreover, the stock wasn’t a heated topic of discussion on financial message boards, as far as I could tell.
Then, in late June and without warning, the stock went vertical. Suddenly, there was a classic hockey-stick pattern: many months of horizontal price action, followed by a rapid move to the upside.
Frankly, I tend to avoid hockey-stick stocks like the plague. In my experience, I’ve found that they tend to come back down about as quickly as they went up.
Consider this: MRIN stock went from $1.67 on June 23 of this year, to $20.29 on July 2. That represents an 1,100% gain – literally an 11-bagger. It trades at around $17.36 today.
This is a great opportunity for meme-stock traders to practice the “know when to say when” policy. There’s nothing wrong with taking profits after quadruple-digit gains.
While I’m at it, I should mention that Marin Software has trailing 12-month earnings per share of -$1.50. That’s not a positive sign, and it’s evidence of a disconnect between the share price and the company’s fundamentals/financials.
No News Is Good News?
On June 29, InvestorPlace contributor Robert Lakin reported that MRIN stock surged in price on “more than 60 times the average daily volume.”
There’s nothing inherently wrong with that, as long as there’s a valid catalyst for such a price move.
However, that valid catalyst was notably absent. Observing that there wasn’t “any material news regarding the company,” Lakin posited that the likely culprit was “Reddit’s retail traders.”
In support of this hypothesis, Lakin cited that day’s social sentiment on r/WallStreetBets surrounding MRIN stock, which was indeed spiking.
If you’d like to try to ride the meme-stock wave with Marin Software, be my guest. You’ll have to be one heck of a nimble trader, though.
If MRIN stock is shooting to the moon on a particular day and there’s nothing but Reddit traders behind the move, then it’s probably not a rally that’s meant to last, or one that you can count on.
You might choose to trade the stock anyway, so I would recommend reading InvestorPlace contributor William White’s excellent primer on Marin Software.
As White explains, the company manages ad revenue online and has been around since 2006.
Recently – on June 24, to be exact – Lakin reported that Marin Software announced a new integration with Instacart.
The market’s response could reasonably be described as mania. At one point, the MRIN stock price was up by 75%.
Instacart is an online grocery platform, and I understand that there’s value in the integration. Still, the reaction was an overreaction, in my humble opinion.
Perhaps it was an excuse for the Reddit traders to set their sights on MRIN stock. The subsequent price action of the stock could be viewed as impressive or unsettling, depending on your perspective.
The Bottom Line on MRIN Stock
It’s perfectly okay to take profits, or just avoid a stock altogether, after it’s yielded returns in the ballpark of 1,100%.
Don’t get me wrong – the meme traders could possibly take MRIN stock much higher.
And I’ll gladly sit on the sidelines, thoroughly enjoying the show from afar.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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