Companies often fall quickly on bad news. Sometimes, the news is terminal for the company, like a bank being seized and closed down. But most of the time, bad news hits a share price harder than it needs to.
That creates a buying opportunity. It’s just important to separate permanent bad news from temporary bad news. As long as a company can continue operating, it’s likely to overcome its challenge and move higher in time.
Right now, cryptocurrency exchanges have taken a hit amid a flurry of SEC lawsuits. That led to a big drop for Coinbase (COIN), the largest publicly-traded exchange in the U.S.
Chances are the exchange will respond to the lawsuit and prevail, even though that will take considerable time and expense. So it’s no surprise that institutional investors are increasing their stake following the drop on the news, including Cathie Wood of ARK Invest.
The crypto winter hasn’t been kind to the company, with revenues down 37 percent over the past year as the asset class has fallen out of favor. But Coinbase is revenue and cash rich, and can continue to improve its industry position in time.
Action to take: Shares look undervalued and ready to move higher in the coming months, making them a contrarian buy now.
For traders, the August $60 calls, last going for about $6.40, stand a good chance of moving in-the-money in the coming weeks.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.