In a year that has seen speculative run-ups for tech stocks on a scale arguably not witnessed since 2000, what has happened with Wunong Net Technology (Nasdaq symbol: WNW) over the last few days might just take the cake.
Wunong, a Chinese online food retailer, priced a 5 million-share IPO on Monday evening at $5. Shares opened on Tuesday at $7.98 and closed at $12.05. Then things got really crazy.
Wunong rose more than 400% on Wednesday to $65.10. Shares blasted off again on Thursday, reaching a high of $160.68 before cooling off a bit and closing at a mere $122.50.
Today’s tape looks quite different: Wunong opened at $101.28 and has seen additional selling pressure since then. As of the time of this article, shares are trading at $81.65, down 33.4% from Thursday’s close.
But while Wunong’s shares are now well off their highs, they’re still hardly a bargain. The company’s market cap stands at a little over $2 billion, which is equal to a whopping 266 times 2019 revenue of $7.68 million.
Does Wunong have a market-leading position to help justify such a nosebleed valuation? Nope. Alibaba (BABA) – Get Report and JD.com’s (JD) – Get Report Chinese online grocery businesses are easily much larger.
Is Wunong seeing meteoric revenue growth that suggests its forward sales multiples will be far more reasonable? Not quite.
The company’s revenue did grow more than 7-fold in 2019, but that’s because (by its own admission) it only began operations in mid-2018. During the first six months of 2020, revenue rose 22% annually to $2.99 million, while Wunong’s net loss rose to $1.3 million from a year-ago level of $461,000. (source: Wunong’s IPO prospectus)
It’s worth stressing here that such numbers are rounding errors for the likes of Alibaba and JD. Ask senior management at these companies about how worried they are about competition from Wunong, and they might struggle to suppress their laughter.
Nonetheless, “investors” (I believe quotation marks are needed here) bid Wunong more than 3,000% above its Monday IPO price at its peak, and — with shares still up over 1,500% from their IPO price — are still paying astronomical multiples for a niche Chinese online grocery player that’s losing money and doesn’t appear to be growing faster than its much larger rivals.
Clearly, the speculative frenzy surrounding Wunong is far from rational and quite untethered from any measured analysis of its business prospects and future profitability. And at a time when so many other tech stocks have also been seeing parabolic run-ups, tech investors should ask themselves to what extent the same holds true for various other companies.