Tiny OraLabs Holding Corp. has seen a huge amount of interest in its shares this week, the kind that could potentially draw the attention of regulators.
More than 10 million shares of the Parker-based maker of lip balm and breath fresheners have traded hands in the past two days – no small task for a company with a “float,” or tradeable shares available, of fewer than 1 million.
Friday, investors traded 12,200 shares of the company’s stock. They traded 4.8 million shares Monday and another 5.3 million Tuesday, more than 20 times the average trading volume this year on each day.
While declining to comment on OraLabs specifically, a spokeswoman for the National Association of Securities Dealers, which oversees the Nasdaq exchanges, said regulators are on the watch for unusual patterns.
“We do real-time monitoring of stock trading. If there are trading irregularities, we will look into it,” said Sarah Bohn.
A battle also appears to be going on behind the scenes between buyers who argue the heavy volume is justified and short-sellers who say a classic “pump and dump” scheme is being pushed on gullible buyers, or “bag holders.”
OraLabs shot up from $2 to $8 a share in early April after the company reached a merger agreement with a Chinese steel manufacturer, only to fall back to less than $3 in July.
Trading volume reached 10 million shares April 10.
Positive earnings triggered the frenzied trading this time. OraLabs announced Friday that sales had jumped 73 percent in the second quarter, compared with a year ago – to $4.4 million from $2.5 million. The maker of Ice Drops, Lip Rageous and Soothe & Shine saw net income rise to $454,000, or 10 cents a share, during the quarter, compared with a loss of $2,926 a year ago.
When trading resumed Monday, shares nearly doubled from $3.32 to $6.63.
“Every momo (momentum) freak in the market is here,” said one participant on a Yahoo Finance chat board for the stock.
But there are questions about how much outside shareholders will benefit.
In what is known as a reverse merger, Shanghai-based steel manufacturer Partner Success Holdings Ltd. will gain control of OraLabs’ Nasdaq listing without going public.
OraLabs’ founder and chief executive, Gary Schlatter, will trade his 77 percent holding in the company’s stock, which isn’t part of the float, for private control of subsidiary OraLabs Inc.
Outside OraLab shareholders will see their interest diluted from 21.7 percent of OraLabs to 3.9 percent of China Precision Steel, the proposed name for the new company.
If OraLabs continues to rake in higher sales and profits, those shareholders won’t be along for the ride. But that didn’t seem to matter Tuesday.
“What better story is there for a tiny float but a Chinese steel company going Nasdaq with an American turnaround company?” wrote mrdecember123 on a YahooFinance chat board.
Ironically, one of the reasons OraLabs gave for its deal with PSHL was a lack of interest from investors, reflected in an “extremely low” trading volume.
OraLab’s share price rose 6 cents Tuesday, or 0.9 percent, to close at $6.69 a share.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
