Stocks see extraordinary performance despite poor business results
Stocks see extraordinary performance despite poor business results
With the recent waves of speculation, corporations' business performance is no longer proportional to stock prices. Despite negative business results and continuous losses in profits, the market prices of many businesses still skyrocketed.
One of these stocks is CMS of CMVIETNAM JSC, listed on the Ha Noi Stock Exchange (HNX). It is one of those posting the strongest gains in the past month with 18 consecutive gaining sessions, of which 13 sessions recorded the biggest intraday gain of 10 per cent.
CMS shares closed last week at VND19,600 per share (US$0.86 per share), 4.3 times higher than that of last month.
In April, CMS stocks were put on a warning list as the parent company witnessed a loss in 2020.
Contrary to its performance on the stock market, the business results of CMVIETNAM are not positive with continuous losses.
In the last three years, 2019 was the only year in which the enterprise recorded positive profit growth, but its profit was only VND4 billion. Meanwhile, in 2020, CMS reported a net loss of nearly VND14 billion, which was also the biggest loss in its business history.
In 2021, the company’s business situation has not improved. In its financial statement for the third quarter of 2021, the company’s net revenue fell 9 per cent over the same period to VND55 billion. However, operating below cost of goods resulted in a negative VND452 million in the company's gross profit.
After deducting expenses, CMVIETNAM reported a net loss of more than VND2.3 billion. Last year, it posted a loss of VND5.6 billion.
For the first nine months of the year, its net revenue reached VND133.1 billion, down 44 per cent over last year. Corporate profit after tax was negative nearly VND9 billion, up 19 per cent compared to the loss of the previous year.
In 2021, CMVIETNAM set a target of VND196 billion in consolidated revenue and VND4.12 billion in consolidated profit before tax. However, with huge losses in the first months, the chance to achieve its business plan is very unlikely.
In addition, stagnant business activities put pressure on cash flow during the period, causing a fall from positive VND51 billion to negative VND63 billion. Cash flow from investing activities recorded a positive amount because during the period the company recovered loans and purchased debt instruments of other entities.
CMVIETNAM isn't the only company whose business performance is poor but its stock price is still rising.
CEO of C.E.O Group JSC is another example. CEO shares tripled in just a month despite its bad business results, with a net loss of VND223.6 billion in the first nine months of 2021.
CEO shares ended last Friday session at VND31,500 per share, gaining for a 12th consecutive day.
In the third quarter, the company’s net revenue plummeted 53.1 per cent year-on-year to VND123.8 billion. Although its cost of goods sold also dropped 25.5 per cent, the decline in revenue was larger due to the impact of the COVID-19 pandemic, the company said. Therefore it still posted a loss of VND58.8 billion in the third quarter.
Another case is HUT of BOT tycoon Tasco after it recorded losses for seven consecutive quarters, but HUT stock prices still nearly doubled after only three months to VND15,300 per share on November 19.
Tasco’s financial statement showed that its net revenue decreased 15.8 per cent on-year to VND162 billion in the third quarter. Even though its cost of goods sold fell 32.6 per cent, increases in other expenses including financial expenses and general and administrative expenses caused a loss of VND72.8 billion during the period.
As of September 30, it recorded a loss of VND146.4 billion.
Caution with junk stocks
Many experts said that the phenomenon was due to most of the cash flow in the market coming from new investors.
New investors participating in the market often do not pay attention to the financial statements and business performance, but only follow the waves with the desire to make profits as quickly as possible.
However, experts also warn investors to be cautious of stocks with bad internals but strong increases in market prices and volumes.
Therefore, before participating, investors should learn carefully about the business situations, choose the optimal buying points and have a strict risk management plan to avoid falling into the trap of junk stocks.
