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Anavex Life Sciences Corp. (NASDAQ:AVXL) Just Gave Investors A Big Discount

Anavex Life Sciences Corp. (NASDAQ:AVXL) Just Gave Investors A Big Discount
Written by
Chris Sandburg
Published on
July 24, 2017
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The small cap biotechnology space has a reputation for being incredibly volatile and – by proxy – incredibly risky for the uninitiated investor. It didn't get this reputation for no reason. Companies can move hundreds of percentage points on new inputs in either direction and can do so with practically no warning. Further, and often, fresh information isn't even required to induce volatility. Market making, institutional buys and sells and a whole spectrum of other types of underlying activity (some ethical, some not) can bring about large moves rooted purely in shares changing hands and having nothing to do with underlying operational advance or decline.We have just seen an example of the latter in Anavex Life Sciences Corp. (NASDAQ:AVXL).Early last week, the company traded for a little over five dollars a share. At the opening bell on Friday, this had dipped to $4.86 a piece – a decline, but nothing substantial. By lunchtime that day, however, Anavex had crashed to $3.60 a share, and more than 25% decline on the session open price. No news was released by the company (other than what amounts to an inconsequential new hire) and there were no new filings with the SEC.Anavex has since recovered some of its lost market capitalization and will open up this week at $4.21. That's not bad, but it is still a discount to the Friday open and – as pointed out – one that hasn't come about on the back of any negative operational release.So what happened?In a word, manipulation. The source of moves like this is all about big fish taking advantage of the retail market and, specifically, the portion of the retail market that have stop losses in place in and around the current share price. A large sell order triggers a bunch of stop losses, which in turn, pushes price down and triggers yet more stop losses. The cycle continues until price finds a bottom. By that time, those who placed the initial sell order have covered that position for a tidy profit and the retail base who had their stop losses triggered are flushed out of their exposures.Anyone who has been in the space for a while will know that these sorts of moves are just something you have to accept as a biotechnology investor. This same group of traders will also know that they serve up an opportunity to pick up an exposure to the company question at a discount. Prior to this decline, and to use Anavex as an example, the company was trading for market capitalization of more than $300 million. It now goes for a capitalization of $175 million, despite nothing changing fundamentally. The difference in valuation here is the discount on offer, with a position at current prices translating to an exposure to what will almost certainly be a recovery near-term as markets rebalance and as traders take a position at current rates in anticipation of operational developments driving price higher.For those new to this company, there are plenty of said developments slated to head press over the coming 12 months, most of which we have addressed in previous coverage here. Anavex is one for which we have held a long-term bullish bias based on the companies technology and its application of this technology to a range of unmet needs in healthcare (first and foremost, Rett syndrome), and the latest share price development has no impact on said long-term bias.So, to sum this up, the bottom line is that the only thing that has changed for Anavex is its market capitalization and for anybody that doesn't yet have an exposure to this company, current prices represent a nice discount to a long-term upside revaluation. Anyone who does have an exposure already might want to consider adding to that position (if they haven't already) and averaging down on the cost of their overall allocation.Catch up with the whole story: check out our previous coverage of AVXL here.We will be updating our subscribers as soon as we know more. For the latest updates on AVXL, sign up below!Image courtesy of Vitalij Fleganov via FlickrDisclosure: We have no position in AVXL and have not been compensated for this article.

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