Just this week Dicker Data Ltd (ASX: DDR) shares have swung from a high of $7.85 to a low of $5.18 to settle at $6.30 this afternoon to leave many shareholders asking what on earth is going on?
This is a very large trading range on any stock over less than three whole trading sessions and Dicker Data received a please explain notices from the ASX today to which it has responded it has no idea what's behind the volatility.
It also stated that it intends to release its full year financial results at the end of August that remain "in line" with prior guidance.
The IT hardware distributor also announced this morning that it has signed a distribution agreement with NASDAQ-listed US$4.2 billion cloud hardware specialist Nutanix. In theory this is a positive for Dicker Data as its business in part remains a plain volume game.
Liquidity matters
I expect the price volatility is because for a $1 billion company Dicker Data shares are illiquid with a limited free float as the two founders reportedly still own around 154 million shares or 71% of the company.
The remaining free float or 29% of the company is just 46.1 million shares which may sound a lot, but not when you consider average daily volume is around 350,000 shares.
On a large volume day such as yesterday 846,000 shares changed hands or around 1.8% of the free float.
The free float register I expect is very small for a $1 billion company which means a lack of buyers and sellers bump the share price around wildly.
A stock split is an option but not likely in my opinion.
While another option for the company to increase liquidity is for the founders to sell down their holding, but this is unlikely to increase the register size as it would only be one or two institutions buying.
I expect Dicker Data investors can expect more daily volatility ahead then.
