The Nigerian Exchange (NGX) has seen a surge in retail participation, especially this year.
However, with the increase in retail investors comes the rise of pump-and-dump stocks, which are manipulated to attract investor interest for quick gains.
What are pump-and-dump stocks?
Pump-and-dump stocks are those that experience a rapid, artificial rise in price, driven by hype or coordinated trading rather than genuine business growth or strong fundamentals.
For example, in 2024, Juli Plc ranked first on the NGX in terms of share price valuation, with a staggering 1,646% year-to-date gain.
- In the 9-month 2024, Juli Plc reported a turnover of just N349 million.
- 67% (134 million) of the 200 million shares outstanding were held by just three entities.
This concentration of ownership means that a small number of shareholders can significantly influence the stock price.
In a pump-and-dump stock, insiders can quickly inflate the price by buying large volumes, then dump their shares once the price is inflated, leaving unsuspecting investors holding shares that rapidly lose value when the price corrects.
What to look out for
Pump-and-dump stocks often share common traits that investors can watch for to avoid falling into it and losing money.
Low trading liquidity
Low liquidity is a significant red flag typical for pump-and-dump stocks.
- Stocks with low liquidity are particularly vulnerable because it takes less money to move their prices. Even small trades can result in dramatic price changes.
Example: Chellarams Plc has posted an impressive 339% share price YtD gain, ranking 5th on the NGX.
- However, between August 20 – November 18, 2025, it ranked as the 113th most traded stock, with an average of just 103,504 shares traded per session, far lower compared to larger stocks.
- Adding to the concern, 14 shareholders hold 92% of the company’s shares, making it easier for a few entities to artificially inflate the price and sell off at a profit.
- This concentration of ownership, coupled with low liquidity, makes the stock highly susceptible to manipulation.
Free float requirement
Companies that fail to comply with the NGX’s free float rules; their stocks are more vulnerable to manipulation. Free float refers to the portion of shares available for trading on the market.
According to NGX rules (Rule 12.2.b.4.a & b), for a company to be listed on the Premium Board, it must have a minimum free float of 20% of its issued share capital, or the value of its free float must be equal to or above N40 billion.
Stocks that don’t meet these requirements tend to have low liquidity and greater price manipulation risks, making them pump-and-dump stocks.
Watch trading volume for abnormal spikes
An abnormal spike in trading volume with no fundamental news to justify it is a key sign of a pump-and-dump stock.
Stocks with low liquidity are particularly vulnerable, as a few large trades can dramatically move the price.
Example: NCR Nigeria has experienced a 519% YtD gain in 2025, compared to 26% YtD in 2024. However, it has also seen significant spikes in trading volume:
- 1,031,905 shares traded on November 14, 2025.
- 66,772,359 shares traded on September 30, 2025—an extraordinary increase from its typical daily volume.
Despite NCR Nigeria’s compliance with the free float requirement and a financial turnaround, reporting N238 million profit for 9M 2025 (up from a N2.7 billion loss in 2024), these volume surges raise concerns about potential price manipulation.
Market cap vs performance
To detect pump-and-dump stocks, investors should also evaluate whether the company’s market capitalization aligns with its fundamentals.
- A stock market cap reflects the total value of its outstanding shares, but a high market cap doesn’t always correlate with strong business performance.
- If a stock with a large market cap has minimal growth, declining profits, or stagnant operations, it may be overvalued and susceptible to speculative behavior.
Let us look at SCOA Nigeria. The company has a market capitalization of N4.61 billion and has seen a 245% YtD gain in 2025, ranking 11th on the NGX.
Despite this price movement, SCOA Nigeria reported a loss of N36 million in 9M of 2025, though it posted a profit of N56 million in 9M 2024.
With revenue hovering around N1.5 billion and net assets of N1.2 billion, the 245% YtD gain and market cap seem out of sync with the company’s earnings and asset base.
This could indicate that the stock is overvalued or driven by speculative trading rather than strong fundamentals.
What investors should do
Above are typical characteristics of pump and dumb stocks, investors should watch out for, to avoid buying these pump-and-dump stocks:
That said, it is important for investors to
- Spread investments across multiple stocks and sectors to reduce risk and avoid getting caught in speculative bubbles.
- Do thorough Research: Never rely solely on share price movement.
- Always verify the fundamentals of a stock, check its earnings, revenue growth, and market position before making any investment decision.
- Avoid penny stocks with low volume penny stocks with low trading volume. Penny stocks here mean those trading below N5 per share.
While these stocks may seem appealing due to their low price, they are often more volatile and prone to manipulation.
- Stick to well-established companies with higher trading volumes and liquidity; banking stocks are good here.
