Glaucus Research Group, a California-based short seller, said it was selling Hong Kong-listed developer Fullshare Holdings due to peculiar trading patterns seen in the stock’s counter.
“Fullshare is supposedly a commercial and residential property developer, but this business is tiny compared to its market capitalization. In FY 2016, Fullshare generated a paltry RMB 132 million in EBIT from continuing operations, meaning it currently trades at 431x recurring operating profits. This is a ludicrous valuation,” the firm said.
Unlike traditional stock market research firms supported by stock brokers, Glaucus generates money by figuring out overvalued stocks, short-selling them and then releasing its findings to the public so that the price of the stock declines.
“We analyzed intraday trading patterns and found that just like Hanergy and Tech Pro, the inexplicable appreciation of Fullshare’s stock price is due to unusual gains posted in the final hour of trading. If an investor bought and held Fullshare’s stock from November 14, 2016, through April 21, 2017, it would have generated a loss of -34%.
“But if an investor bought Fullshare’s shares at the beginning of the last trading hour and sold at the close of the trading day (and reinvested the proceeds the next day in the same manner), Fullshare’s stock would have returned an inexplicable 76%! The difference between the returns in trading Fullshare’s stock with a last-hour trading strategy and a buy-and-hold strategy was 110% over this period. This staggering difference is highly unusual when compared to other Hong Kong stocks,” it added.
Due to the suspicious nature of the trading pattern, the price could see correction going forward, it warned.
“Fullshare’s operating business is so insignificant that if we value Fullshare at the median multiple for HSCIPC companies (either on an adjusted P/E or adjusted P/B ratio), we would expect Fullshare’s stock to decrease by 70-80%.”
It also raised questions about what it said was transfer of the company’s assets outside its balance sheet and said, in its opinion, investors should stay away from the company.