New Hong Kong Stock Makes GameStop Look Tame
A fintech company you have probably never heard of, listed in New York three weeks ago, was briefly more valuable than Facebook
By Jacky Wong
Wall Street Journal
Updated Aug. 5, 2022 7:26 am ET
Step aside, GameStop and AMC. A new billion-dollar stock bubble makes yesteryear’s meme stocks look like child’s play.
The market value of fintech company AMTD Digital, HKD -9.85%? controlled by a Hong Kong-based financial institution, briefly eclipsed Facebook parent Meta Platforms this week, after the stock’s price rose more than 300 times since it was listed in New York three weeks ago. The bubble has started to deflate in the past couple of days, but the company still has a market capitalization of $148 billion—bigger than Goldman Sachs.
There are no obvious fundamental reasons for the rally. AMTD Digital only had revenue of $25 million and a net profit of $22 million for the fiscal year ending in April last year. That means at its current price, the stock is trading at more than 6,000 times its latest earnings. And around 40% of those profits came from changes in the fair value of its financial assets. AMTD Digital runs an online financial services platform, but there is no apparent news trigger for the sudden leap skyward in its valuation. On Tuesday, the company released a statement noting “significant volatility” in its share price and saying it was unaware of any material circumstances related to its business since the IPO.
One plausible explanation is that the company has a thin public float. Its parent, New York-listed AMTD Idea, AMTD 8.84%? owns around 88.7% of the company after the initial public offering. That means it is easy to push up the stock with relatively little capital. Despite the astonishing share-price gain, trading volume remains relatively low. Even on its busiest trading day so far, only 1.3% of the company traded. The low float also means it is hard to borrow the stock to put in a short trade.
Individual investors need to be careful to not get burned in a related trade. AMTD Idea, the parent company, is one of the most traded stocks among Fidelity customers in recent days. Around three-quarters of the company changed hands on Tuesday. Shares of the parent have nearly quadrupled in the past month and the company is now worth around $2.9 billion.
While AMTD Idea might look cheap given its stake in AMTD Digital, that is based on the latter’s valuation, which appears to be detached from reality. Similarly inexplicable past stock rallies in Hong Kong offer cautionary tales.
In 2019, a marble miner called Artgo surged as much as 3,800%, only to have most of those gains wiped out in one day after MSCI reversed its decision to add the stock into its indexes. Chinese solar company Hanergy Thin Film Power’s meteoric rise once made its founder China’s richest man, but his wealth evaporated after the stock’s sudden plunge in 2015. The stock was delisted in 2019. There are many more examples of low-float companies with perplexing surges and subsequent collapses.
AMTD’s bubble has grown even larger than its predecessors. The popping noise will presumably be even more deafening.
Write to Jacky Wong at jacky.wong@wsj.com
A New Hong Kong Stock Makes GameStop Look Tame - WSJ |
