Why Cricut’s stock rose 26% in June

What happened

Shares of Cricut (NASDAQ:CRCT) rose 26.1% in June, according to data fromS&P Global Market Information. The company didn’t make its first public offering (IPO) until March, and IPOs are typically volatile shortly after going public. So maybe we’re witnessing that volatility at work for Cricut. That said, a major shareholder significantly increased its stake in Cricut in June, likely prompting the stock to rise.

So what

According to a filing with the Securities and Exchange Commission (SEC) on June 25, Abdiel Capital now owns nearly 22% of Cricut’s Class A shares. The company has been repurchasing the stock regularly in recent weeks. However, it bought more than 850,000 shares from June 23 to June 24. For perspective, the float for Cricut stock is just 16.4 million shares, according to Yahoo Finance. And the average daily trading volume is less than a million shares. The purchase of so many shares in just two days seems to have caused the peak in June.

Image source: Getty Images.

To further substantiate this theory, the Cricut stock has already returned most of its gains in June. Stock prices naturally reflect supply and demand. Over a longer period of time, demand for stocks is created through things like revenue growth or earnings growth. But for a few days, Abdiel Capital acquired a significant amount of Cricut stock. The price jumped as the supply fell. But now things are in balance and so the price has come down.

What now

Predicting an event like this and trying to capitalize on it would have been impossible, like almost anything in the short term. That’s why I and others encourage investors to analyze company fundamentals to predict long-term movements. Cricut powers the creative economy with machines that create personalized items. And there has been a lot of demand for these types of products over the past year – in favor of Cricut.

However, anyone looking to buy these IPO stocks today must determine whether this market is ready for: sustainable long-term growth or whether it was only temporarily boosted by the COVID-19 pandemic.

You can try to answer this question by seeking third-party market research. For example, according to Expert Market Research, the global craft market is expected to grow at a compound annual growth rate of nearly 11% between now and 2026. But that’s just one source. Before deciding to invest, make sure you have sufficient confirmation of the market’s long-term outlook.

Over time, Cricut’s own operating results will confirm or disprove theories about long-term demand for the company’s products. Either way, it’s probably a stock to add to your watchlist for now.