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Why the Novita Healthcare share price is still on a wild ride

The Novita Healthcare Ltd (ASX: NHL) share price is down 7% to 9.1 cents today, but up around 8x from 1.1 cents on October 23 after the biotech handed investors some big news.

On October 24 hardly known Novita told investors its TALi Detect (digital attention deficit screening program) had been approved for commercial use by the U.S. healthcare regulator the FDA.

Effectively US medical professionals using Tali Detect can also now apply for cost reimbursement from U.S. healthcare insurers or public players. 

The share price was so responsive to the news as Novita is a penny stock where small price movements represent large percentage swings in value.

For example a penny stock valued at 3 cents only has to climb 3 cents to deliver traders a 100% return. Whereas a $30 stock has to climb 3,000 cents to deliver the same return.

This is why penny or micro-cap stocks attract a lot of love from day or momentum traders simply looking to turn a quick profit regardless of valuation or fundamentals.

After all if you can make a 100% in a day you can see why many are tempted to chance their arm day trading. However, it’s not a wealth-building strategy I’d recommend myself. 

Back to Novita

For the quarter ending September 30 2019 Novita posted ‘cash receipts’ of just $15,00o for an operating loss of $757,000. At the period end it had $1.45 million cash on hand with a forecast for an operating cash outflow around $767,000 for the December quarter.

As such it looks likely it’ll have to undertake some capital management activities soon enough that could include a placement, warrants, capital raising, or debt funding. 

Other speculative businesses interesting market players include Mesoblast limited (ASX: MSB) and Paradigm Biopharmaceuticals Ltd (ASX: PAR).

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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 Scott Phillips.

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