Sometimes even a 24,000% gain can be a bad thing, especially if it involves a very dicey penny stock.
CYNK Technology Corp.'s (OTC: CYNK) spike from $0.10 in mid-June to a Wednesday closing price of $14.71 represented a gain of 24,417% in less than four weeks.
Not only was there no news behind that spectacular gain, but even calling CYNK a company is a stretch.
According to publicly available data, CYNK has never earned any revenue and had lost $1.5 million as of the end of 2013. Oh, and the company has no assets, either.
What it does have is an obscure website, site.introbiz.com, that purports to be a social networking "referral service for introductions." Here third parties can charge a fee for contact information on business professionals, celebrities, and more. Only two entities are listed on the site, Artist Black Book and World Talent Agency.
With the meteoric rise in the CYNK stock price, however, the market cap of this shadow of a company soared past $4 billion. That put CYNK's valuation above that of such companies as Regal Entertainment Group (NYSE: RGC), Advanced Micro Devices Inc. (NYSE: AMD), and U.S. Steel Corp. (NYSE: X).
Frankly, the whole situation is absurd, but penny stock investors can take some lessons away from the CYNK fiasco.
Just about everything regarding CYNK is a red flag, said Yahoo! Finance senior columnist Michael Santoli.
"Any ounce of investigation in terms of what this might have been as an underlying business would have shown you there's nothing to bother owning here," Santoli said in a video interview. "It just sort of shows you this game of hot potato that gets played in penny stocks."
And while penny stocks today get "pumped and dumped" all the time - hyped by actors seeking to make a quick buck, then dumped as soon as enough gullible investors buy to drive up the stock price - the CYNK situation stands out as unusual.
How could a penny stock like CYNK soar 24,000%, and who might be orchestrating it?
A Penny Stock Gone Wild: CYNK Technologies (OTC: CYNK)
The odd thing is, very few pump-and-dump penny stock schemes ever generate the kind of stratospheric gains that CYNK stock has seen. What could have happened?
One clue is that in June CYNK filed for a 75-to-1 stock split. Such a massive split is rare among high priced stocks - recall that tech giant Apple Inc. (Nasdaq: AAPL) recently executed a 7-to-1 split.
Diluting the value of a penny stock by a factor of 75 is just plain nuts. But it's possible that the intent was to do a 75-to-1 reverse stock split, which would have reduced the number of shares and increased their value.
One theory holds that CYNK erred when it filed the documentation, resulting in the split. The unusual move could have caught the attention of some penny stock sharks, who may have wrongly assumed that CYNK was about to announce some big news that would cause the stock to skyrocket.
Or it could be that a pump-and-dump operator just hit the jackpot.
But right now, no one is quite sure what's going on with CYNK - including the U.S. Securities and Exchange Commission (SEC).
On Friday (today), the SEC halted trading on CYNK until July 24 "because of concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in CYNK's common stock."
The SEC action has locked the CYNK price at $13.90, where it closed on Thursday.
That means any penny stock investors who might have gotten sucked in are now stuck and can't get out, with further possible SEC action adding to the uncertainty.
Santoli noted that get-rich-quick opportunities in penny stocks today may appear more alluring now with the major markets trading near all-time highs.
"There's always been this subculture in the market; it does sort of wax and wane in terms of how intense it is. But right now it does seem as if there's a little bit of a temptation to get into these things simply because maybe some real businesses that you think you've missed out on have done so well in the market, " he said.
UP NEXT: Just because there are a few bad apples in the world of penny stocks doesn't mean investors need to avoid them altogether. You just need to know how to navigate these sometimes treacherous - but often profitable - waters. Here are a few tips on how to trade penny stocks...
- Yahoo! Finance: Why Is This Stock Up 25,000%?
- Business Insider: A 'Social Networking' Stock Has Exploded 25,000% In A Few Days, and It's Not Even Clear If the Company Exists
- SEC: CYNK Trading Halt