Urban One: The Mysterious Surge And Our Recommendation

To say Urban One, Inc. (UONE) has been on a tear would be a gross understatement. The financial media has apparently found it difficult to keep up the pace with what is happening with Urban One stock. Beat Billions wanted to find answers to the sudden increase in the stock price and the investor enthusiasm toward Urban One. In this article, we will reveal our findings along with a recommendation based on an expert opinion that we have formed from the information that we have in hand.

This is why shares surged

In analyzing the recent market movements of Urban One stock, we identified two phases.

In the first phase, shares surged from just $1.50 on June 12 to over $40 in two days, registering a mind-boggling gain of over 2,500%. The primary reason behind this unusual gain is the Black Lives Matter movement that is gaining traction globally. In the United States and many European countries, both consumers and businesses are taking innovative measures to support minority communities. For instance, Uber introduced special discounts to restaurants owned by African-Americans when they partner with Uber Eats in a bid to support businesses owned by the minority of the country.

Investors, on the other hand, have been searching for businesses that cater to African-American societies and they were quite happy to pump money into Urban One stock once they realized the company is one of the leading entertainment companies in the U.S. with a focus on black people.

Here’s a snapshot of what Urban One is all about.

Source: Company website

According to the About Us page on Urban One website, the company’s content reaches 82% of Black Americans living in the United States, which goes on to show the massive footprint of the company in this ethnic group. Below are some of the popular brands owned and operated by the company.

  • TV One
  • CLEO TV
  • Radio One
  • Reach Media
  • iOne Digital
  • One Solution
  • R1 Digital
  • One VIP

As a company that operates several popular radio and TV channels that cater to Black Americans, it’s no surprise the stock price surged as day traders wanted a piece of this company to support the black community and to speculate on an increase in revenue resulting from an uptick in viewership in the coming months.

The second surge in the stock occurred on June 18 when the stock doubled from $12 to $24. After the initial surge, Urban One stock had given away most of its gains only to trend higher on June 18. This second wave, we believe, is the work of amateur traders who discovered the stock recently and were trying to get on board in hopes of another run-up of the share price.

Is now a good time to bet on Urban One Stock?

Contrary to many online forums that promote investing in Urban One at these inflated prices, we think investors should wait for a better opportunity, if at all.

Below charts courtesy of Google Trends indicate a significant decline in the interest about protests and the Black Lives Matter movement, which is quite similar to all the uproars we have seen over the last decade. At most, Americans get back to their normalcy within a month from an event that sparks outrage due to racial injustice.

Search interest over time for “George Floyd Protest”

Search interest over time for “Black Lives Matter”

Search interest over time for “Support Black Business

Source: Google Trends

We expect the hype to subside significantly in the coming weeks, leading to a drastic drop in trading volume for Urban One stock. This, in return, will lead to a decline in the share price as well.

Investors who missed the run-up, therefore, should ideally wait for a better opportunity to initiate a long position.

The difference between UONE and UONEK

Many investors seem to be confused about the two share classes of Urban One and some are baffled as to why UONEK shares did not gain as much as the other class. We thought it best to address this anomaly as it could help readers make better investment decisions.

The main difference between UONE and UONEK is the voting rights attached to these share classes. While UONE shareholders, or the class A shareholders, receive voting rights, the class D shares represented by UONEK do not carry voting rights. This would not matter a lot to a retail investor if the investor does not plan to vote on company matters such as the appointment of directors in the future. A retail investor, therefore, should not be worried about differentiating between the two classes of shares.

The massive difference between the price of class A and D shares of Urban One can be explained by the float, or the number of shares available in the market to trade. UONE, the voting shares, has a free float of around 1.5 million shares, whereas non-voting UONEK class has over 38 million shares in the market. This massive differential in free float explains why the voting shares skyrocketed while non-voting shares did not gain as much as the voting did.

Can Urban One stock price pop again?

With the presidential election just a few months away, it’s reasonable to believe that African-Americans living in the country will once again come to the spotlight in the next few months. This, however, does not guarantee that Urban One stock will once again pop as a result. During the 2016 election, Urban One stock basically went nowhere even though the situation was quite similar to what we are seeing today.

While we, at Beat Billions, do not plan to do anything with Urban One stock anytime in the future, an investor who is keen on supporting the business by being a shareholder or someone who wants to speculate on another pop in the stock price as the election approaches, should ideally wait until the enthusiasm subsides, which might only be a few trading sessions away. As far as we see, the stock will drop drastically in the next few weeks, erasing all the recent gains.

Takeaway

In this article, we wanted to give our readers an understanding of the reasons behind the hype about Urban One stock and why we believe now is not the right time to chase the stock. We have not conducted an analysis of the financials of Urban One as the objective of this analysis was not to determine an intrinsic value for Urban One shares.

As protests across the country are coming to an end, so will Urban One’s mysterious gains. In light of this stark reality, we suggest investors distancing themselves from the company for now. If the stock price falls dramatically as we expect, we will come up with an update in which we will assign a target price for Urban One stock.

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