What happened
Shares of Hong Kong-based Magic Empire Global Limited(NASDAQ: MEGL) plummeted nearly 87% as of 1:38 p.m. ET today for no obvious reason, but just days after the stock exploded following its initial public offering last week.
So what
Magic Empire Global is an investment bank that has been operating since 2016. In 2021, the company generated a profit of just $203,000 on total revenue of nearly $2.2 million.
Last Thursday, it conducted its IPO and listed shares for $4. On Friday, the stock hit nearly $235 in a huge run that appears to be triggered by retail traders. The IPO included the sale of 5 million shares, which is a small float and can allow traders to drive up the price.
Today's volume, while bearish, was 4 million shares, so that kind of volume and this low of a float have the potential to move shares in a big way.
"This price level has clearly shown it is not sustainable," Ken Shih, head of wealth management at Saxo Capital Markets, told Bloomberg. "At this point, downside risk for investors clearly outweighs upside."
Now what
I would have to agree with Shih here. Even after the big fall today, Magic Empire Global still trades at a $316 million market cap, giving it a massive valuation whether pricing it on revenue or earnings.
The stock is clearly being manipulated, which makes it incredibly volatile and hard to predict. I would under no circumstances even think about buying shares until the price comes back down closer to its initial listing price.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
