Markets

Why Houghton Mifflin Harcourt Stock Is Plummeting Today

What happened

Shares of Houghton Mifflin Harcourt (NASDAQ: HMHC) were plummeting on Monday morning. As of 11:45 a.m. EDT today, the stock was down 15%.

If you're a shareholder, you're feeling whiplash. As the five-day chart below shows, the stock has experienced extreme movements as traders try to figure out what this online-education company is worth with the coronavirus changing the rules of the game. 

HMHC Chart

HMHC data by YCharts.

So what

Since the market bottom in March, traders have been prowling for "easy money" stocks to pounce on. Frequent targets include small-cap stocks, stocks trading below $5 per share, trading well below previous 2020 highs, and companies that have at least a loose COVID-19 thesis. Houghton Mifflin Harcourt (HMH) stock fits this entire description, explaining why traders were attracted to it in the first place.

Even vague news can send a stock like this flying. Last Thursday, HMH stock soared 32% after the company announced a new online platform for teachers. It was real news, but lacked the financial context necessary to warrant the stock going up that much in a single day.

But after the closing bell on Thursday, some rumors began circulating on Twitter that did have financial context. The posts claimed HMH has $1 billion in new education contracts in Latin America, Asia, and the Middle East "to help combat COVID-19." The stock surged as a result.

The only problem is, HMH management also issued a statement Thursday night saying these rumors weren't accurate. Nevertheless, its stock was up on Friday. To me, it's only logical to assume traders bought the stock on the unsubstantiated rumors, unaware HMH management had already refuted the claim. 

Today, the stock is likely falling as more traders digest the previous press release from management.

A frustrated man puts his hands on his head while looking at a big, red stock chart.

Image source: Getty Images.

Now what

To be clear, HMH management is not obligated to track down every rumor on the internet and refute the false ones. This is actually a good sign if you're an HMH shareholder. Management demonstrated it cares for its shareholders, and wants them to have accurate information. Trustworthiness is a valuable quality.

If you're looking for a source of information you can trust, be sure you're getting it from the HMH investor relations page. 

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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