Wockhardt Jumps 48.2% In 8 Days; Here's Why You Should Stay Away From The Stock

On Thursday, shares of Wockhardt Limited were locked in 10% upper circuit, extending its recent and sudden rally that was also questioned by the stock exchanges. Between 17 November and 26 November, between 8 trading days, the stock has gained 48.2% jumping from 14 November's close of Rs 293.20 to Rs 434.65 per share.

On 24 November, BSE sought clarification from the Mumbai-based pharmaceutical and biotechnology company on the sudden movement in its share price.

"The Exchange has sought clarification from Wockhardt Ltd on November 24, 2020 with reference to significant movement in price, in order to ensure that investors have latest relevant information about the company and to inform the market so that the interest of the investors is safeguarded," a BSE filing read.

To this, the company replied on Wednesday that it has been making "prompt disclosures of all
events or information" that are price sensitive in nature. "At this point of time, the Company does not have any specific information/ announcement which have a bearing on the price or volume behavior of the scrip," it added.

Here's why you should avoid chasing the surge in its stock price

1. From Wockhardt's response, it is clear that the jump in share price has been baseless and may be likely due to speculative activity.

2. 72.12% stake is owned by the company's promoter, while mutual funds own a mere 0.01% in the drugmaker. Foreign institutional investors' (FIIs) hold a 4.63% stake.

This means that it is low free-float stock, that is, the number of shares available to the public or retail investors is low. Low free-float stocks typically witness sharp volatile movement. The stock could start falling in value at the same speed.

3. The stock had been an underperformer on a long-term basis, rising only 15.2% in the last decade. It has reported a negative ROE (Return On Equity ratio) for 3 consecutive years.

4. Despite being a BSE 500 stock, it is not rated by analysts.