Top Financial (NASDAQ: TOP) stock is up 13%. TOP stock still seems to be in the grip of a certain speculative mania and we really do not think that it is objectively worth its current valuation. The market capitalization is $257 million (obviously, dependent on exactly which moment we use) and for a company producing revenue (yes, revenue, not profit) of about $10 million that's just silly. Well, for a company that doesn;t have a massive growth story to tell that is indeed silly. And TOP stock doesn't have a massive growth story, as we've said elsewhere:
“But perhaps there's some massive change that would support it? A drug research company could well have that sort of growth rate if the FDA granted an unexpected licence. Or maybe some subsidiary just lucked out. Or an investment worked well? You know, Peter Theil's 401(k) did pretty well out of Facebook one time. But even the possibility of that means looking more at how TOP works. "Our Operating subsidiaries generate revenues primarily by charging commission fees on futures transactions at a flat rate for each futures transaction contract. Currently our customers are mainly high volume and frequency trading institutional and individual investors primarily residing in Asia and we are currently focusing on expanding our customer base to Southeast Asian investors."”
There just isn't anything there to tell us that there's about to be some massive boom.
Top Financial stock price from NASDAQ
It is true that rising interest rates benefit TOP. For the margins left by futures traders can be invested and the benefit of such investments flows to the company, not the traders. But such monies are always invested in short term money markets so while a couple of percent is nice to get it's not a huge influence.
The real reason Top Financial is overvalued is because it was a meme stock for a time: “Top Financial, (NASDAQ: TOP) is up 197% yesterday during normal trading and another 1,050% after hours. This is absurd and we shouldn't believe it for a moment. Oh, sure, this is a real price change. There's also substantial trade behind it - 34 million as against a more normal daily volume of 400k or so. But no, really, there is nothing that will really have driven a stock price like this up 3,000 percent in under 24 hours. This is mania, not a careful consideration of value.”
We also get echoes of that from time to time at TOP: “Sure, Top Financial was exciting. But that's all it was, one of those little manias that grip markets from time to time. It's even true that having a little bet on it all would have been exciting - but don't, whatever you do, confuse that, in any sense, with investing.”
Note that we're not saying that there's anything wrong at Top Financial. Only that it's just not worth a quarter of a billion dollars. There may well be more fun to be had in speculation in TOP stock. But make sure we all realise that it is just fun and speculation - objective value doesn't even support current price levels.