Why have Mesoblast Limited shares soared today?

Credit: Alon

If you sold your Mesoblast Limited (ASX: MSB) shares yesterday, you’d likely be kicking yourself today.

Yesterday, Mesoblast Limited shares finally emerged from their multi-day trading halt to be heavily sold down by the market.

Though headline figures showed a modest 18% fall between open and close (i.e. during trading hours), comparing yesterday’s close price to the prior day’s close price shows an enormous 42% fall.

However, if you sold a large stake during yesterday’s selling frenzy, you may today be kicking yourself because Mesoblast Limited shares climbed as much as 18% higher today.

What’s going on?

A week ago, more than 5% of Mesoblast shares were held short, meaning investors were betting on a decline in the biotechnology company’s share price. As a result of yesterday’s huge falls those ‘short sellers’ would likely have made significant profits and many would have closed out their short positions by buying back the company’s shares. However, that likely doesn’t explain today’s share price rally.

Another plausible explanation could come from analyst rating changes. According to Dow Jones Newswires, Bell Potter analysts reduced their Mesoblast price target 27% to $3.39. However, Macquarie’s price target stands at $0.81 cents.

Foolish Takeaway

When (not if) you find yourself in the position of holding shares in a company that is suffering a massive intraday share price fall, it is hard to act rationally. However, by following a simple trading rule, such as ‘Don’t sell a share when it falls by more than 5% in a single day’, you may actually save yourself some money and heartache. It doesn’t always work, sure, but at the very least it’ll prompt you to scrutinise the timing of your sell decision.

If you are inclined to think Mesoblast will come under more selling pressure, today could be an opportunity to sell out.

Forget companies like Mesoblast!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned in this article. You can follow Owen on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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