2 Pros, 2 Cons for China Nano-cap Ever-Glory International Group


You’ll be quickly forgiven if you’ve never heard of Ever-Glory International Group (NASDAQ:EVK). Seeing how crazy of a name this is, I thought this was yet another Chinese electric vehicle maker. Turns out, I was only half right: the “Chinese” and “maker” bits of the EVK stock name.

side-by-side shot of American flag and flag of China
Source: Aritra Deb / Shutterstock.com

The Nanjing-based apparel maker specializing in women’s clothes, Ever-Glory isn’t that well known outside of Asia. Given the tremendous rise in EVK stock, though, it’s possible that we’ll be hearing more about the underlying company. It sells both at retail and wholesale, including online via JD.com (NASDAQ:JD)

Between Oct. 21-27, shares skyrocketed nearly 162%. Those are great gains for the entire year, yet EVK stock achieved this in under a week. To be fair, the price quickly collapsed after hitting its peak, suggesting that this is nothing more than a speculative bet.

However, the new normal has witnessed many investors pounce on bankrupt organizations like Hertz Global (OTCMKTS:HTZGQ). Surely, these same gamblers would be interested in a company that has at least some credibility, especially with its exposure to the relevant Asian consumer market.

Not only that, our own Louis Navellier urged InvestorPlace readers to expand their geographic horizons with EVK stock. In his words, Ever-Glory could be a “hidden gem” that has a significant retail presence in China.

At the same time, I’m not a huge fan of stocks that jump for no reason. And that’s apparently what EVK stock did when it almost tripled in value during its week of exuberance. Further, its recent surge seems more related to the possibility that Joe Biden will likely win be the one inaugurated in January.

Still, the case for nano-cap EVK stock — only $28.43 million market capitalization as of this morning — is intriguing because China has recovered surprisingly well (though I’m skeptical about anything that comes out of its government’s mouth). If the recovery is genuine, Ever-Glory could be worth a look. Here are my two pros and two cons on making a move into these shares.

Pro #1: Asia Is the Right Market for EVK Stock

If you’re in any retail segment, you want to go where the customers are. And that’s especially the case with the apparel market.

So here’s the deal. According to the left-leaning New York Times, racial/ethnic differences go beyond skin color but are evident in the blood. Essentially, if people groups are distinguished by their genetic differences, it’s reasonable to assume that these differences manifest themselves in distinct physical features, which very well affect apparel makers due to sizing issues.

In this case, Ever-Glory operates in the relevant market. According to Worldometers.info, the East Asian population is equivalent to 21.5% of the total world population. Further, most East Asians, by virtue of China, live in developed or rapidly developing parts of the world. Basically, they have the money to spend on luxury goods like apparel.

In contrast, brands that cater to the average western body type(s) are by virtue losing relevance. Through inference via various academic sources, the global western population is declining. Cynically, that means EVK stock is on the way up, while western apparel brands are on their way down (unless they wise up to international demographic shifts).

Pro #2: Biden’s Win Could Justify Ever-Glory’s Premium

Now that most Americans — save for a cadre of Republicans and their leaders — acknowledge Joe Biden’s election win last week, many analysts are focusing on what that will mean for Washington-Beijing relations.

Less hostility in the tone and actions is the tide that could lift all boats on China trade. From that perspective, the run-up in EVK stock is logical.

Con #1: Branding Has Been All-Important in This Crisis

Though EVK stock has an obvious catalyst in the China/Asia market, that alone shouldn’t be the reason to buy shares. Look, the Far East isn’t a panacea for an underperforming business.

More critically, while the consumer market has produced surprise winners in the new normal, with the apparel industry, it appears that brand power matters most of all. For instance, consider that Nike (NYSE:NKE) and Lululemon Athletica (NASDAQ:LULU) have outperformed this year. Those who have money during this crisis prefer well-known, in-fashion brands.

On the other end of the spectrum, Under Armour (NYSE:UA, NYSE:UAA) has underperformed on a year-to-date basis (although to be fair, it’s been moving strongly higher in recent sessions). Plus, you have discount retailer Ross Stores (NASDAQ:ROST), which is also having a rough year in 2020.

Now, look at Ever-Glory. Chances are, you’ve never heard of the brand. Even well-to-do Asian consumers will prefer western brands because of their global recognition. In this context, EVK stock seems merely a play on market emotions, which is always a dangerous game.

Con #2: The Trump Effect

While the “paper” odds favor Biden to win the presidency, don’t count out President Trump. Even if Biden gets the electoral votes that he needs, Trump and his supporters will not go away quietly.

So, even if Trump doesn’t win, half of the country is absolutely enraged at the results. Therefore, if Biden is to bring the nation together, he may not be able to play nice with China, not if he wants to secure power for the Democrats.

At Minimum, EVK Stock is High-Risk, High-Reward

I’ll be blunt: EVK stock is not appropriate for 90% of investors. It’s simply too volatile and prone to wild swings for anyone who isn’t going to watch this name like a hawk. However, in the context of the new normal, I’ve seen dumber plays. If you can handle the extreme heat, Ever-Glory might be worth a shot.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/2-pros-2-cons-evk-stock/.

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