Traders are playing the lockup expiration in REAL stock as a large dark pool trade hit in regular hours trading on December 27, 2019.
The dark pool order looks like a buy off the $18 level on December 27, 2019, because of how REAL stock immediately rose after the dark pool print. I think some deep pocket traders are playing lock up expiration but not how you think.
Here is what I think is going on and this gets a little complex so make sure you are following along and I will do my best to explain in clear terms what is happening.
On December 23rd and 24th, heavy put options flow was detected in REAL stock. Why? Because IPO related lockup expired on Christmas day, December 25, 2019. Options traders were buying puts to front-run the lockup expiration. The day after Christmas, on Thursday, December, 26, 2019, REAL stock was under pressure in early trading. A lockup on an IPO prevents major shareholders and company insiders from selling the company’s shares for a specified number of days following its initial public offering. REAL stock went public back in June at $20 per share, climbing 45% and closing at $28.90 on its first day of trading. Shares would fall to $13 by August, before bouncing back to $17 recently. The company’s IPO lockup expired on Christmas day, with an additional 68M shares, almost 82% of those outstanding, becoming available when the market opened on Thursday.
The stock went down in the days leading up to the lockup expiration and even went down in early trading on Thursday, the day after Christmas. Suddenly though, on Friday, December 27, 2019, long investors came back into the stock getting shares cheaper from the IPO expiration sell-off earlier in the week. The dark pool order on Friday, December 27, 2019, looks like a big player buying the stock off the $18 level. Finviz reports that institutional ownership is up 26.3% from the previous 3 month period.
Many traders thought the expiration of the lockup period was going to really push REAL stock down, especially after the November 21, 2019, CNBC report that following its investigation on the company’s authentication process, obtained internal documents, called “Copywriting Faux and Tell,” show “hundreds of fakes” the company missed. The internal documents are a weekly recap of RealReal published and returned counterfeits, CNBC reports. A total of 227 pages from the first and third quarters of 2019 show specific examples of what are labeled “TRR fakes,” according to CNBC. A bunch of ambulance chasing law firms pounced on the CNBC report with a class action lawsuit with allegations against REAL that include that: (1) the Company’s employees received little training on how to spot fake items; (2) the Company’s strict quotas on its employees exacerbated product authentication issues; (3) consequently, the potential for counterfeit or mislabeled items to make it through Company’s authentication process was higher than disclosed; and (4) as a result, Defendants’ statements about the Company’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.
Lots of traders thought that REAL stock was going to absolutely dive after the IPO lockup period expired on Christmas day hence they front-ran the expiration with lots of put buying. However, some deep pocket investors used the dark pool to reverse the stock on Friday, December 27, 2019, and to squeeze those put buyers and short sellers out of their positions. This has set up a great long entry in REAL stock IMO as longs squeeze the short sellers and put buyers out of their positions.
On December 19, 2019, Needham analyst Rick Patel initiated coverage of RealReal with a Buy rating and $23 price target. The analyst is positive on the outlook for the resale industry, which he considers to be at an early growth stage, as well as the growth in “circular economy, the luxury industry, and digital commerce.” Patel also believes that RealReal is making progress toward achieving profitability by 2022, with strong momentum and industry tailwinds set to continue.
On December 17, 2019, B. Riley FBR analyst Susan Anderson initiated coverage of RealReal with a Buy rating and $23 price target. The company is capitalizing on luxury and value amid disruption in the high-end consignment market, Anderson tells investors in a research note.
On December 10, 2019, DA Davidson analyst John Morris initiated coverage of RealReal with a Buy rating and $22 price target. The analyst is positive on the company’s leading position in “creating a new online marketplace in luxury resale” with an attractive business model that helps “unlock coveted merchandise” and entice buyers through a “trusted, curated assortment.” Morris adds that RealReal stock offers an attractive valuation as it deserves a 10% premium to its peer group on enterprise value to expected sales basis.