The marketplace has seen a remarkable divergence between large/mid-cap stocks and small/micro-cap stocks over the last three years.
A major cause of this divergence between larger company stock prices and smaller company prices is the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in response to the financial crisis of 2008 because of the sub-prime mortgage fiasco. The Obama administration passed the legislation in 2010 and the SEC began implementing the changes in 2012.
While the Dodd-Frank Act has many provisions, the primary cause in the price divergence has been increased enforcement actions by the SEC against both issuers and brokers. The SEC has effectively eliminated a broker’s ability to recommend low priced stocks by making them criminally liable for recommendations of small company stocks.
Looking at the specifics, The S&P 500 is trading near its all-time highs while small and micro-cap stocks are trading at all-time lows. In fact, the valuation of small companies is currently near 1998 levels, prior to the dot-com boom.
The Dodd-Frank Act has effectively, overinflated the price of large and mid-cap stocks while artificially and fundamentally devaluing the prices of small and micro-cap company stocks.
With regard to dollar volume, low priced stock volume bottomed in March, 2016. In most of 2015, daily dollar volume was around $800 million and by March and April of this year, daily dollar volume was under $100 million, an all-time low.
Large marketplace divergences usually represent a big opportunity for undervalued and oversold company stocks.
Personally, I expect to see money start to flow back into small company stocks very soon. The marketplace divergence is now too big to overlook. Add to the divergence the unique positioning of GPDB as a first mover with an online digital application for market influencers; and that GPDB is a disruptor, potentially changing the entire distribution system for CLEAN foods.
I believe our company is very undervalued and the timing is good for investment in our future.