Extra froth in small cap land…

October 4, 2010

We don’t spend a lot of time tracking small cap stocks. But we couldn’t help but notice an interesting dichotomy that popped up last week. Last Tuesday, Hyperdynamics (HDY) saw its stock jump 25% in one day, making it onto those lists of biggest gainers. It was also a new 52-week high for the stock (putting it on another list) and there was an unusual level of trading volume with 2.2 million shares trading hands (yet another list).

There wasn’t any positive news that day coming out of Hyperdynamics, but they did file their 10-K, which is how we stumbled across the company. In the 10-K was an warning about the company’s ability to continue as a going concern. So we couldn’t help but wonder how many of those folks who were furiously trading shares and chatting about the company — both positively and negatively — on Yahoo’s message boards, were actually familiar with the going concern warning.

We haven’t really taken a hard look at the filing, so we don’t know which of the two sides on the message boards will ultimately prevail. To be fair, the going concern warning has been part of the filings for awhile now. But in July, the company appointed a new CFO who lasted all of two weeks, which is rarely a positive sign.

What we do know is that there doesn’t seem to be a lot of concern for what’s going on at Hyperdynamics — making it yet another of those small-caps where the froth is more important than the facts, at least in the short term.

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