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PreMarket Prep Stock Of The Day: Royalty Pharma

·3 min read

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Retail traders continue to influence price action in equities and with the assistance of Jim Cramer, recent IPO Royalty Pharma (NASDAQ: RPRX) soared in after-hours and pre-market trading.

The Company: Royalty Pharma was founded in 1996 and is the largest buyer of biopharmaceutical royalties and a leading founder of innovation across the biopharmaceutical industry.

The company funds innovative programs in the industry both directly and indirectly. Their goal is to create favorable outcomes for all pirates and play a major role in providing capital to the biopharmaceutical ecosystem that supports innovation and positively impacts human health.

The IPO: The company priced itself at $28 a share and its $2.18 billion initial public offering is the largest U.S. IPO of the year. It's the second-largest pharmaceutical IPO ever, coming in just below Zoetis Inc’s (NYSE: ZTS) $2.2 billion IPO in 2013.

Underpriced: On Tuesday, its inaugural day of trading, it opened at $44, had a brief retreat to $42, and ended the day at $44.50. The following day it bottomed just above that closing price at $45 and reached $51.95 before falling back to end the session at $48.61.

Cramer Pumps, Retail Traders Bite In After-Hours Trading: Once the company was discussed favorably by Jim Cramer on CNBC, retail traders hit the “buy” button and it was off to the races. How could one resist with statements such as it will thrive in "good and bad times," IPO'ing in the "golden age of medical research" and "buy a small piece here and if it cools off back-up the truck and buy more."

Those statements instigated an initial surge in after-hours trading far beyond Tuesday’s high ($51.95), reaching $54.75 and ended that session at $54.

Surge Continues: The issue drifted higher on lighter volume until just after 7 a.m. EST then some big boys stepped in and drove the issue to $57 on much higher volume. It continued to trade higher on significant volume and peaked at $57.50 just ahead of the opening bell.

The Big Boys Step To The Plate: Although the issue was not discussed on our regular show, the issue was covered in the author's "hotmic.io segment," which takes place at the conclusion of the PreMarket Prep Show. For those interested in it can be found at hotmic.io under code JOEL317.

As always, caution was urged chasing the issue higher off the opening bell; Instead, use the pre-market high as a potential exit. The longer it takes to breach that high, the more likely the issue would fade.

Price Action Off The Open: Right on cue, the overzealous retail traders that chased the issue got caught holding the bag.

After a higher open, it rallied another 11 cents to $56.50 (shy of the pre-market high) and reversed course. As of 11 a.m., it retreated as low as $52.42 and rebounded back into the $55 handle.

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