With Progenity, What Is Pumped Will Be Dumped

You can make money playing penny shares like Progenity (NASDAQ:PROG) stock. Just get out while the getting is good.

Progenity stock has been subject to a short squeeze since late September when it was selling below $1/share. It opened Nov. 16 at almost $4. As of late October, about 14% of the shares were being held short. 

Trading volume in PROG stock has also been rising sharply, from about 18 million shares per day in late September to 156 million shares at the end of October. This coincides with the rise in the stock price.

Now, do you want to know what Progenity does, or how much business it’s doing? Neither do the people trading these shares.

No There, There

As our Ian Bezek reported recently, Progenity came public in June 2020 as a genetic testing company. It did $144 million in business during 2019, although it wracked up losses while pursuing growth.

Then, right after the IPO, the Justice Department took $49 million from Progenity to settle charges around fraudulent billing and kickbacks.  I suspect management knew about the charges before they took the company public. (Those managers are no longer with the company.) Then, early in 2021, the company said it would close its testing lab and stop selling genetic tests.

What is left? Mostly press releases, patents and early-stage studies.

There’s almost no revenue. Progenity reported $40.6 million in business in 2020, when the testing operation was still around. Revenue for the quarter ending in June was $463,000. At that time the balance sheet showed almost $66 million in cash on the books. But there was also almost $159 million in long-term debt, and no obvious way to repay. The market cap for this on Nov. 15 was $568 million.

In Progenity’s most recent earnings presentation, management said it had raised $79 million in capital and cut costs. Progenity also named Adi Mohanty CEO.  His main experience was running BioTime, another pre-revenue biotech that changed its name to Lineage Cell Therapeutics (NASDAQ:LCTX) in 2019, and had $2.27 million in revenue for the year ending in September. On Nov. 8, Mohanty had an option to buy about 500,000 shares of Progenity at $3.54, with about 400,000 in share grants due to vest Nov. 15.

The Pumping of PROG Stock

Despite all this, there are traders on Reddit, with screen names like Johnnybegood45 and DavidW19999, pushing Progenity as a squeeze play. “HODL and don’t sell,” wrote The_king_of_stocks, adding “this is not financial advice.” Well, it’s not a formula for baby food.

Reporters looking for reasons here say it’s the appointment of Jill Howe, who has over 20 years of experience in the biotech trenches, to the board that’s behind the latest move higher. More likely it’s the short squeeze, with traders looking to get the last ounce of juice from this name facing a swarm of small investors looking to get rich quick.

The Bottom Line

When your timing is right, this can work. As our Samuel O’Brient notes, Progenity was still among the “Fintel 5” on Nov. 8. These are stocks which the information service thinks could jump if enough traders buy into them.

But timing is everything. If you’re not paying big money for up-to-the-minute information you’re going to be dumped on when the pumping is over.

There was evidence early this month the PROG stock momentum may be fading. Progenity peaked Oct. 26 at nearly $4/share, dropped to $3.11, popped again to $3.60, fell below $4, and popped again to $3.92 early on Nov. 16.

At some point, however, the squeezers take their profits and the shorts win, because there’s no real asset to trade. Don’t be left holding the bag when the music stops.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.