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. As it is a real price - it really is possible to buy and sell at these elevated prices, even at quantity - then we do have to decide what to do about it. But the first step in that is to try to think through is this based on any fundamentals?
Our answer would be no. Top Financial is a small to medium sized financial brokerage operating in Hong Kong. It offers futures and options trading, that sort of thing. Which is pretty much a commodity business - there's a fee for handling the paperwork of such deals but it's nothing exotically exciting. It's true that there's about 6% of the stock out on loan to shorts but that's not really enough to enable a significant short squeeze.
The thing is, there's nothing about being a brokerage - which, note, is not the same as being the principal - which could or should lead to such a rise in a stock price.
Top Financial stock price from NASDAQ
The closest analogy we can come to is AMTD. Where AMTD Digital, on its IPO, went up so much that it was at one point “worth” more than Goldman Sachs. This dragged up the major shareholder, AMTD IDEA, behind it. There was no specific or particular reason behind such price movements. Just fad or mania, nothing else. Prices rapidly - like in weeks - returned to about the issue price. It was a very passing fad or mania.
We would insist that this is what is happening at Top Financial. The result of which is that e would predict that the TOP stock price will fall back. We're confident in that. What we don't know, and what makes the prediction dangerous, is that we don't know how far TOP might still go up, nor when the fall will come. Trading this is going to be credibly risky simply because it is a trade on the madness of the crowd. It will come back to Earth, but when?
