HKD, MEGL, and ATXG: The Summer of “Demon Stock” IPOs
Its been an overall crummy time to go public via IPO, or at least for most companies. Since July, three Chinese IPOs have generated intense interest amongst Wall Street analysts as mediocre-looking companies listed, dramatically rose, and dramatically fell, within a short time frame. Lets take a closer look.
Last week, another Chinese company, Addentax Group (NASDAQ: ATXG), went public and stunned Wall Street after gaining more than 13,000% after which its stock price plummeted. In initial trading, ATXG common stock opened at $27 before dropping to around $12.95. It was a disappointing, if not completely unexpected, result from a Shenzhen-based apparel manufacturing and logistics company that reported ’21 financials with less than $13 million in sales for the year that ended March.
Within hours after its listing ATXG inexplicably surged to $411.63 and stopped trading. The stock eventually closes at a staggering $656.54 (and triggers over 20 volatility stops) with a market cap of around $20 billion. Since then, the world has returned to its former sense. ATXG is currently valued at $30 per share, giving him a market capitalization of nearly $783 million.
As mentioned above, Addentax Group could certainly be classified as an exception, but it follows the list of financial services firms AMTD Digital (NYSE: HKD) and Magic Empire Global (NASDAQ: MEGL) in recent history. represents the third explosive Chinese IPO this summer alone. In a simialr vein, HKD mysteriously rose to $1,679 per share, fell to $212 a week later, and is currently trading at $114. Meanwhile, MEGL mysteriously rose to a slightly reasonable $117 per share before correcting to $12.32 and now he’s trading at $6.53. None of these are profitable, according to Investor Palace. Incidentally, the order books for Addentax Group, AMTD Digital, and Magic Empire Global were all owned by Network 1 Financial Securities of Red Bank, New Jersey.
Initially, analysts pointed fingers at the denizens of Reddit’s r/WallStreetBets in a classic case of blame-the-retail crowd. However, a look at social media chatter and the relatively low volume for a stock witnessing a +13000% pop suggests that a retail-driven meme stock rally was not in play here. Interestingly, a number of less-than-savory characters (underwriters and other financiers) were both shared by the 3 new listees and also surfaced in the Pandora Papers. There’s much still to be understood here, but my words of non-financial advice are to keep a close eye on Chinese IPOs and don’t bank on sustained seven-digital daily percentage gains.