There are three stocks I’m aware of (CHPT, EVGO, LCID), which crashed right after they reported that workers and “big stake” investors are allowed to purchase a big amount of common stocks for a lower price. I’m wondering why this happens. Isn't it supposed to increase the stock price?
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2Don't know any of these cases, but an obvious general question would be: did the price crash after it was reported that employees/investors bought them cheap, or after those who bought them cheap started selling them?– TripeHoundCommented Oct 15, 2023 at 10:37
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It happened really fast (2-3 days after the announcement) so I guess it happened before they sold the stocks.– Or ShaharCommented Oct 15, 2023 at 10:39
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1Employee stock purchase plans are standard and shouldn't affect the price any more than any other expenditure of the same size would. Regarding "big steak investors" -- did you mean stake?– keshlamCommented Oct 15, 2023 at 14:57
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1 Answer
The 15% discount is standard for an ESPP, completely within regulations, and ESPPs are done by most US tech companies - which should also show this behaviour if there was any connection.
The behaviour you are seeing is probably just coincidence on volatile stocks. There might have just been other things that actually moved the stock:
CHPT announced a 20-year ESPP program in February 2021 in a stockholders meeting. In the same meeting, they also announced the merger with a spac, which means a major financial restructuring. You can untangle how much of the stock movement belonged to the ESPP and how much movement was due to now being a publicly traded company at the NYSE from March, 1st (which was the reason for the merger).
LCID announced its program in July 2021. There doesn't seem to have been big movements during July, but maybe you mean a different date (but if you do, this still shows that an ESPP for LCID doesn't cause a crash in general). In any case, LCID moved from $10 to $38 in 2021, with news-driven intermediate spikes to above $50 in February and November. This is neither a crash, nor would I assume (without a more detailed analysis) that, if there were, it would be caused by the ESPP and not some other news, which there were plenty of.
EVgo dropped from its IPO in 2021 from $15 to below $3 today. I don't know which ESPP you are referring to, but given the general trend, there was probably something else impacting the stock. But in general: an ESPP for 200-ish employees with "costs" (if you can call them that) of maybe $1 million a year (which is 0.04% of the $2.6 billion IPO valuation) shouldn't be expected to cause a crash. Daily random stock movements oftentimes are worth more than this.
answered Oct 15, 2023 at 14:13
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Thank you for answering! I ment for more recent events, such as this finance.yahoo.com/news/… for EVGO and finance.yahoo.com/news/… for CHPT. Thanks in advance! Commented Oct 15, 2023 at 17:21
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5Sorry, but both links have nothing to do with employees buying stocks. Both links are (horrible) news, and are about capital increase: the CHTP-link means they got some money, but have to pay twice the interest for their outstanding bonds to increase their duration by one year (which probably means something like "we cannot pay them back as expected, please give us more time, we give you stocks and more interest, we promise we earn money soon"). EVGO issued new shares for "general business purposes" (so probably not to increase value, but to pay bills). Both should result in stock price drops. Commented Oct 15, 2023 at 17:53