It’s dangerous out there right now. The market is on an epic bender. You may not see it in the broader markets, but it exists underneath.
Not since the dot-com era have I seen so many “crap” companies double, triple, or go up 10-fold in days. While this may not be an acceptable term, it is accurate, in my view. These are companies with virtually no underlying business, revenue, or competitive advantage. In fact, most shouldn’t be public but only exist as a public entity so insiders can cash out to bagholders.
But this isn’t the dot-com market. Money is essentially free. There are no paying alternatives on the conservative side of the fence with interest rates non-existent. In short, where else will people put their money? But at the same time, they aren’t parking their money. Instead, small-caps, micro-caps, and hot sectors are being treating like an Uber (UBER) . Folks are hopping in without the intention of staying for more than a short trip. It’s a quick ride to get to a destination. You hop out and someone else hops in.
Unfortunately, it’s more than that. We’ve entered a time of reckless abandon with trades. It’s about what can be pumped next. It’s about what low-float name can an early group run as high as possible, dragging in the most aggressive or the most ignorant traders.
Wunong Net Technology (WNW) , an online food e-commerce site in China, priced an IPO at $5 three days ago. It had to downsize from $37 million to $25 million because of lack of demand. An insider sold nearly 1 million shares for $5 each, yet the stock is halted at $144 PER Share right now. The $125 million market cap IPO is now at $3.6 billion.
I can barely find much in the way of information on this company. As far I can see, they had about $3 million in revenue in the first six months of the year, resulting in a loss of $1.3 million. Revenue grew by 21% while the net loss almost tripled. Furthermore, they appear to be nothing more than a pass through. This is from their filing:
“We do not grow, foster or manufacture any food products and all the food products sold on our Website are from our suppliers.”
Margins are improving and the company did show a great improvement from 2018 to 2019; however, the rationality here is simply gone. And this name isn’t alone. I’m probably beating a dead horse since I’ve discussed this over the past few months. It won’t take long for one of these to get halted and never open again.
What we do know is this kind of greed and froth doesn’t die easily or quickly, but when it dies, it does so violently.
Just keep this in the back of your mind as we enter 2021. A calendar changes few things fundamentally, but it will impact people psychologically. It won’t take long for you to hear the phrase, “it isn’t 2020 anymore.”