Overnight Delivery Risk

What happens to a market when there are too many buyers. According to financial journalists, it means that there need to be more sales. But some financial pros think there's no such thing as overbought, since lots of buying affects market prices and eventually leads to selling...so it all sorts itself out in the end.

The company Hair-Be-Back came out with a hair growth formula for men that actually…worked. On the head. Not on the knuckles. Not on the elbows. Not on the feet. Not on the um…anywhere else.

But actually on the head and it didn’t look like transplanted butt hair.

And of course the stock zoomed. From 10 bucks at its IPO to almost a thousand. The only problem was that the company was kind of running out of heads.

It was clear that growth would slow at some point in the next few years and maybe slow dramatically.

Yet everyone loved Hair-Be-Back, and while at the IPO the company went public at 20 times earnings, it now traded at 82 times earnings and that multiple kept expanding.

If you looked for shares of HBB, you’d find them in essentially every mutual fund, hedge fund, index fund, family office portfolio, university endowment and, well, you name it.

Everyone owned it. Only so many heads to um…shade. The shares were overbought. That is, there was a much higher chance that, from that point, they’d go down rather than up.

Does that mean they go down next quarter? Next year? Not necessarily. It’s just that the supply-demand equation here looks a bit scary, especially if you are a trader playing hot potato with a potentially highly volatile 82 times earnings stock.

And, of course, the same holds true for the company Bald-No-More, whose Somalian division did, in fact, engage in fraud. They were convicted...and had to pay a fine of 600,000,000 Zimbabwean dollars or, uh...roughly 11 bucks U.S.

But when news of the fraud conviction hit, shares of the primary U.S. corporation went from about $200 a share all the way down to $40 where they sit today, representing a company with no debt, $15 in cash and $2 in projected earnings this year, assuming nothing from Somalia.

Those numbers place the equity cap of the company at a modest, single-digit multiple of earnings, about half the multiple at which this growth-y company had historically traded.

The shares now are owned almost nowhere. Just a few loyal concentrated, value-oriented mutual funds own it. No hedge funds. No endowments. No pensions.

The shares have been oversold. And likely have upward pressure, at least as driven by sentiment changes likely to hit when that Somalian thing has long since passed.

Yeesh. Talk about something that’ll put a little hair on your chest...