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The Mysterious and Baffling Cautionary Tale of AeroClean Technologies

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Sometimes a stock mysteriously rises without any identifiable logic. That’s essentially what happened in the case of AeroClean Technologies (NASDAQ:AERC) stock, which rose meteorically, only to quickly plummet.

Someone cleaning a kitchen table with a spray bottle and towel.
Someone cleaning a kitchen table with a spray bottle and towel.

Source: Maridav/ShutterStock.com

It is really a very strange tale in the world of the stock market. There’s plenty of precedent in recent times for strange tales within the stock market. Seemingly undeserving equities have been pumped up to very high levels. The meme stock phenomenon provides multiple examples.

But AeroClean Technologies doesn’t fall under that categorization. It simply seems to be an anomaly that got pumped up without a clear explanation. In hindsight it should’ve never risen as high as it did.

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Warning Signs on AERC Stock

Again, it’s very difficult to rationalize why AERC stock was as well-received as it initially was. The firm underwent a Reg A+ IPO. Such IPOs allow companies to undergo a public offering up to $75 million with reduced documentation.

That alone is a warning sign. Part of the reason SPACs have received so much scrutiny recently is that they too are allowed to skirt stricter regulatory oversight. This doesn’t mean that all SPACs and Reg A+ IPOs are hiding anything, but it ought to make investors more cautious.

The company reported very weak operations in its 1-A Filer. The company is very small: It only employs five individuals.

That isn’t necessarily so bad either. But the firm reported no income in that filer. On top of that, AeroClean reported a net loss of $4.654 million. Such figures would seemingly make it difficult to justify share prices moving above common, announced $10 IPO levels.

And that’s what makes it even more strange. By the time AeroClean closed its IPO on Nov. 29, its share price had risen to $117.

That has left everyone puzzled.

No Meme Connection

AERC stock doesn’t look to have been pumped up by meme stock fanatics or their collective action. In the wake of its meteoric rise, social media pundits are seeking to justify why it should rise after dropping to $10 overnight. But they don’t offer any explanation of why it spiked, only to then plummet.

Over on Yahoo! Finance conversation boards suggest that it was a concerted pump and dump effort. One user claims that the company hired chat room and social media forum plants to pump up the stock to later dump it.

However, there is little more than acquisition to substantiate that user’s claims. Again, it simply leads to more questions than answers.

If it wasn’t a scam, what could have precipitated the massive run up?

Catalysts

One arguable catalyst is that AeroClean’s business is air sanitization and pathogen elimination. Its main products are branded as Pūrgo™ (pure-go).

It’s fairly easy then to connect the company to coronavirus fears, especially in light of the Omicron variant. That said, it just doesn’t seem to add up in totality.

Again, AeroClean’s IPO laid bare the fact that the company has zero sales.

That seems at odds with the company’s technological claims: “We create solutions for hospitals, offices and many shared spaces as well as elevators, travel and more. Pūrgo™ products feature SteriDuct™, a proprietary technology developed by our best-in-class aerospace engineers, medical scientists and innovators. Powered by SteriDuct™, our solutions are medical-grade, destroying viral, fungal and bacterial airborne pathogens.”

Those claims suggest that the company was actually selling its products into established sales channels when that wasn’t the case at all.

What to Do With AERC Stock

Obviously there’s no reason to invest in AERC stock now. It is a cautionary tale and an interesting footnote to the increasingly unpredictable stock market of 2021.

The more interesting aspect of the story now is the mystery of what actually transpired. Perhaps in time we’ll learn more, but for now the main takeaway is always do your due diligence and never follow the crowd blindly.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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