Why Farfetch Stock Is Soaring Today

Farfetch (NYSE:FTCH) stock is seeing big gains in Wednesday's trading. The company's share price was up 14.3% as of 2:15 p.m. ET, according to data from S&P Global Market Intelligence.

Farfetch stock is rebounding today following news that the struggling company could be on track to secure new sources of outside funding. Sky News published a report today announcing it had learned that Apollo Management could be interested in investing in the beaten-down e-commerce specialist. Sky News also said that other parties are potentially looking at providing funding for Farfetch.

Farfetch stock's volatile ride continues

Today's gains for Farfetch stock come on the heels of a massive crash at the beginning of the week following news that Moody's had downgraded the company's credit rating.

After the downgrade, Farfetch will likely have a harder time getting new loans through traditional channels. In turn, it makes sense for the struggling e-commerce player to seek new investment from outside sources in order to secure the funding it will need to continue operating.

If the company can secure new funding by taking on new debt or selling stock, it could be able stave off collapse and deliver strong returns for shareholders who buy at today's prices. But that's far from being a sure thing, and the penny stock is still down approximately 85% year to date.

What comes next for Farfetch stock?

Farfetch stock will likely continue to be highly volatile in the near term. With the company still burning cash, it faces the risk of bankruptcy.

According to reports, Farfetch needs to raise roughly $500 million in new funding. However, new capital infusions may not materialize.

If the e-commerce specialist can secure new funding, it's possible that it could stop the bleeding and orchestrate some kind of turnaround initiative. But as it stands, the company's outlook is fraught, and investors should proceed with the understanding that betting on continued recovery for its share price is a risky proposition.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's. The Motley Fool recommends Farfetch. The Motley Fool has a disclosure policy.