5 obscure ASX stocks that have crashed because of the Coronavirus

The pledge

About two weeks ago, we ran a story titled: Why 5 tiny ASX stocks have soared because of the Coronavirus.

In it we briefly profiled the share price performance (for the month ending 3 March) of five obscure ASX-listed companies that had or did stand to benefit from the Coronavirus (COVID-19) crisis.

There was Zoono, an antimicrobial stock that had risen 136%; Uscom a medical device company that was up a staggering 186%; Aeris Environmental, that like Zoono produced disinfectants and had gained 55%; Biotron a promising viral drugs company that was up 38%; and finally, Eagle Health, a sort of logistics play that was going to help Zoono with Chinese distribution, also up 54%.

Mind you, since we ran that story, the Coronavirus crisis has only escalated: Across the globe there are now over 169,000 reported cases of the virus and over 6,500 deaths as a direct result of it.

In response to the hard-to-quantify economic impact of all this, equity markets themselves have been performing in an understandably whacky fashion, as broader markets swing between desolate pessimist and jubilant optimism.

For example, the ASX 200 recorded its largest ever intra-day shock today, tumbling 537 points or 9.7% by the close; and even though the US Federal Reserve announced on Sunday that they’d be cutting interest rates to near zero, US futures markets still crumbled, with DOW futures down over 1,000 points in response.

Benjamin Graham, the legendary value investor, described these types of market extremes in his famous work, the Intelligent Investor. Here Mr Graham highlighted the inherently volatile nature of the market, through his now famous ‘Mr Market’ parable, saying:

‘At times he [Mr Market] feels euphoric and can see only the favourable factors affecting the business.’

But at other times, Graham warned:

‘He is depressed and can see nothing but trouble ahead for both the business and the world.

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The turn: Zoono, Uscom, Biotron share prices and others

Getting back to our original point, in our first story on those five obscure stocks we asked: ‘Are these stocks all hype or are they the real deal?’ That is, was the market pricing those equities fairly and efficiently; or had they ran well ahead of their fundamentals.

Well, it seems as if the market (Mr Market) has gifted us with a relatively definitive answer to that question: with those stocks’ frothy gains turning to modest losses in the last week.

According to the ASX, in the last five days (now ending 16 March) Zoono has seen its share price fall 12.50%, Uscom has dropped 16.07%, Aeris has slid 21.36%, Biotron is now down 13.04% and finally, Eagle Health has seen its share price come off the most significant of the bunch, falling 23.08%.

These kind of reversals illuminate the inherent risk of equity investing – particularly when you are playing at the speculative end of the market.