In the dynamic world of stock markets, unexpected rises and falls often provoke intense scrutiny from investors and analysts alikeOne such case has recently drawn considerable attention: Evergrande Technology Group, a company that has garnered both interest and skepticismOn a particular afternoon, the company's shares skyrocketed, ultimately hitting the upper limit set for trading and closing at an impressive 11.17 yuan per shareRemarkably, this marks the highest point the stock has reached in the current year, tantalizingly close to its pinnacle of 11.3 yuan from early 2020.
The trajectory of Evergrande Technology’s stock price has been nothing short of extraordinaryStarting from July 8th, shares surged by an astonishing 120% in a mere 20 daysDuring this remarkable rally, the stock clinched nine trading limit rises, a clear indicator of heightened investor enthusiasmBut what sparks such an abrupt transformation after a prolonged period of stagnant pricing?
Evergrande Technology operates in the environmental protection sector, focusing on providing efficient and convenient solutions aimed at wear resistance and corrosion prevention
Their product offerings are diverse, including wear-resistant materials, garbage furnace protections, sound insulation projects, waste heat power generation, and internet advertising servicesNotably, internet marketing contributes a hefty 42% to their revenue, while energy-saving and environmental products account for an even more substantial 55%.
Despite its promising beginnings when it listed back in 2011, the company’s financial performance has been dispiritingSix years after its public debut, its revenue only climbed from 260 million yuan in 2011 to approximately 530 million yuan last yearA growth rate of just 100% over a decade is far from impressive, particularly when juxtaposed against national GDP growth ratesThe company’s profitability is equally concerning: over eleven years since going public, Evergrande Technology has suffered cumulative losses amounting to about 270 million yuan, despite raising significant funds (a combined 950 million yuan) through IPO financing and follow-on offerings
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In that same time frame, they have only issued 126 million yuan in dividends.
This reliance on financing from its public offering raises troubling questions regarding the sustainability of the company's operations—an inquiry compounded by the fact that the net asset value has plummeted from 1.3 billion yuan in 2017 to 780 million yuan today, presenting a disconcerting picture of financial deterioration.
The company's stock price equally reflects these strugglesFollowing a peak at 23 yuan during the market boom of 2015, shares tumbled steadily, concluding this year at a low of just 4.06 yuan—an astonishing decline of 83% from their zenith.
Yet, in a surprising turn of events, Evergrande Technology's fortunes seemed to reverse in July, as the stock price surged to a two-year highInterestingly, no significant positive news emerged from the company itself to justify such an escalation
While the company holds potential in sectors such as photovoltaics and ultra-supercritical power generation, these areas are only tangentially related to its core business, leaving doubts about their substantial contribution to Evergrande's financial performance.
In the absence of a solid fundamental boost, the sudden spike in share price suggests an influx of investment capital driving the momentumIndeed, since July 12, Evergrande Technology has appeared eight times on the "Dragon and Tiger List," a trading board that highlights the stocks with the highest trading volumes, widely regarded as a sign of speculative trading activity and the presence of seasoned institutional investors.
Yet, not all news surrounding the company has been positiveThe firm reported a loss of around 4 million yuan in the first half of the year, a stark contrast to a profit of 20.37 million yuan during the same timeframe the previous year
Furthermore, the company’s controlling shareholder is in the process of transferring and reducing their stake, with funds from this transaction earmarked to repay stock pledge financing loans—a move signaling possible financial distress.
These adverse developments prompted the stock exchange to issue an inquiry letter directed at the company, compelling them to clarify the applications of their products in ultra-supercritical boiler equipment and their potential impacts on earningsThe purpose of such correspondence is to ensure that investors receive timely and pertinent information, thereby facilitating a reduction in information asymmetry—a common concern with stocks experiencing abnormal price movements.
Interestingly, the issuance of an inquiry letter can shed light on whether the recent price surge is merely speculative or backed by tangible factsA reply to an inquiry isn't always indicative of a price drop; in fact, some stocks, such as Zhongtong Bus, managed to sustain rising valuations even after two suspension checks