Market Mystified by Energy-Drink Maker’s Skyrocketing Stock
There must have been something potent in the recent IPO for energy drink maker Eastroc Beverage (Group) Co. Ltd. (605499.SH).
Following a maximum-allowable 44% gain on its May 27 debut, the stock proceeded to rise by the 10% daily limit on each of the next 13 trading days. The streak was broken when it only rose by 5% on June 17, though it notched one more daily-limit 10% gain the following day.
All that said, the stock now trades at more than at nearly six times its IPO price, giving it a market value of about 100 billion yuan ($15.5 billion).
The meteoric rise left even Eastroc, whose energy drinks are No. 2 in China behind only global giant Red Bull, scratching its head.
“The company’s current stock price has seriously deviated from its fundamentals, and is significantly higher than the average level of the industry. There is a risk of high valuation,” it said in one of its several statements responding to the steady run-up.
In numerous warnings, the company have warned that China’s securities regulator was on the lookout for trading irregularities in its stock and could take actions such as freezing certain key accounts or blocking suspicious transactions.
Investors finally took heed on Monday, when the stock ended its remarkable streak of major consecutive gains by closing down 3%.
At its current valuation, the company has a price-to-earnings ratio of 131 — more than double the average for China-listed drink makers. In the period between May 27 and June 18, shares equivalent to more than 150% of the company’s total changed hands, with the equivalent of 73% changing hands during a single day on June 16.
Founded in 1994, Eastroc was converted from a state-owned to a private company in 2003. It expanded its reach nationwide in 2013 and specializes in energy drinks, which account for 90% of its total turnover.
Contact reporter Yang Ge (email@example.com)
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