We’re going to establish the number one most important thing right out of the gate, before we get into this situation: This is about as high risk as stocks get. This stock just IPO’d, is based in a foreign country, and has run 30,000% in two weeks on very low volume. Translation: Please do not read this and conclude, “Wow, what a great stock that I should definitely buy!” — That is absolutely NOT what we’re saying here.
Okay, disclaimer is over. Let’s look at what’s going on in (HKD) .
AMTD Digital (HKD): What do they do?
AMTD Digital is a Hong Kong based investment banking company that has created a digital platform called “AMTD SpiderNet”. AMTD calls SpiderNet a “metaverse” ecosystem and currently it’s mostly used by fintech start-ups and internet influencers. Oh, what’s that? That sounds vague you say? No worries, check out AMTD’s website to clear up all of your confusion.
If the italics weren't clear enough: we're being sarcastic — the website's explanation of SpiderNet is extremely vague.
What can be gleaned from the website is:
- AMTD provides investment banking and asset management services to clients on an international basis
- AMTD Digital raised $125M in its New York IPO — the largest listing by a Chinese company in 2022
- It owns the SpiderNet platform
That’s really all the website explains. After digging through a few press releases, we were able to determine that the SpiderNet platform intends to provide capital and technology to digital startups, as well as provide networking services to other digital startups. In turn, SpiderNet collects a fee from its members, which is where it gets almost all of its revenue.
In short: AMTD Digital is a Hong Kong based fintech play which essentially provides loans and services to startups in exchange for fees.
Does it justify AMTD Digital quickly becoming the 26th largest stock in the United States by market cap? Let’s get a little more information about the stock before we make that judgment.
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The Rise of AMTD Digital Stock
This is the juicy stuff. Apart from the corners of FinTwit and Wallstreetbets, AMTD Digital is relatively unknown. We’re going to shine the light on it:
- At its debut, AMTD Digital had a reasonably high price-to-earnings ratio of 18 — higher than the average Chinese fintech ratio of ~5.
- Currently trading at $2,555.30, the P/E ratio has risen to a whopping 13,160.
- The market cap is currently 386,745M — placing it just below (XOM) - Get Exxon Mobil Corporation Report in size, and above companies like Walmart, (DIS) - Get The Walt Disney Company Report, and McDonalds.
- According to a recent filing, AMTD Digital has only 51 employees.
- AMTD Digital is owned by AMTD Idea Group (AMTD), which has also had a relatively swift rise.
- During its second year of operation (2020), AMTD Digital’s revenue grew more than 10X.
- Following that impressive growth, annual revenue slowed significantly, falling to 17% in 2021.
- In 2022, revenue growth has fallen to just 4% according to its most recent SEC prospectus.
- AMTD Digital operates with relatively high margins — 88% in the most recent fiscal year.
- However, included in that profit margin calculation is the gains from its equity investments.
- AMTD Digital’s meteoric run has been against a backdrop of declining volume which was already low to begin with.
Summarizing AMTD Digital (HKD)’s Mysterious Run
If we were going to give the shortest summary possible of AMTD’s recent movement, we would say that nothing about this run makes traditional “sense”.
- The low volume does make sense given the massive run.
- The P/E ratio is absurdly high compared to its sector, and even the rest of the market.
- The market cap doesn’t make sense given that AMTD Digital is a company that few people have ever heard of, and is also (for now) the 16th largest stock by market cap trading in the United States.
- The revenue slowing from 10X to just 4% doesn’t justify the run, either.
If it seems like we’re being critical: We are. You should be too. The stock market can be a lucrative tool for accrual of wealth, but it can also trap investors and traders who aren’t careful about their investments. Often, if something seems too good to be true, it probably is. In other words, as Market Rebellion Co-Founder Pete Najarian often says, “Discipline Dictates Action” — and disciplined traders do their research.