Why Did Critical Metals Stock Just Pop?
Key Points
Critical Metals insiders are dumping their stock.
Outside investors perversely read this as good news today -- but it's not.
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Critical Metals (NASDAQ: CRML) stock, a start-up miner of lithium and rare-earth elements in Greenland, jumped 3.7% through 11:40 a.m. ET on some news that... ordinarily many investors would consider bad:
Critical Metals insiders are selling stock.
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A lot of stock.
2.8 million shares of stock -- about 2.4% of all shares outstanding.
Image source: Getty Images.
Details, please
As the company confided in an "F-3" filing with the SEC last night, certain "selling securityholders" intend to "from time to time" sell off their ownership stakes in Critical Metals -- probably no more than two million shares initially, plus a further 777,600 shares once they've been acquired pursuant to the exercise of stock warrants.
Because this is a case of insiders selling shares they own, not Critical Metals creating and selling shares for its own benefit, Critical Metals will receive none of the proceeds from these stock sales (other than the money it would usually receive from insiders exercising their warrants). Indeed, Critical Metals may have to spend money to cover "certain expenses associated with the registration of the Shares covered by this prospectus," the company admits.
Is Critical Metals stock a sell?
Long story short, Critical Metals insiders are dumping shares, and outside shareholders are reacting to the news by... bidding Critical Metals stock up today? This makes no sense, but it appears to be precisely what's happening.
Of course, the more logical reaction to this bad news would be to sell Critical Metals stock -- not buy it. No one ever accused momentum traders of being rational, though. My advice?
Stay away from Critical Metals stock.
Should you buy stock in Critical Metals right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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