I’ll admit to knowing nothing about Ever-Glory International (NASDAQ:EVK), a China-based apparel manufacturer and retailer, before I conducted research for this column. But I knew there had to be something about EVK stock that was drawing the attention of our readers. A quick glance shows some significant price action and a surge of trading volume by the stock since late October.
Stock expert Louis Navallier noted that there was no particular news that would explain the price action. Navallier speculated that a large-scale shareholder or a group of them may have made “block trades” that involve millions of shares. That makes sense to me. Ever-Glory is a low-float stock that wouldn’t be likely to draw much attention from Robinhood traders.
However, I’m still left to wonder about the traders’ motivation. And the only thing I can think of is that this is another of those “why ask why?” moments we’ve become so familiar with in 2020.
But EVK stock is inexpensive, and investors saw an opportunity to drive the stock higher in advance of its earnings report.
And to be fair, despite some selling pressure, EVK stock has jumped over 40% in the last month. Does that mean it’s time for retail investors to buy the shares? I wouldn’t definitely say that it does.
The stock does have some catalysts. First, China’s Singles Day just took place on Nov. 11. And that may give Ever-Glory a good start to Q4, a quarter in which it has historically delivered relatively strong results. And second, the incoming Biden administration is likely to look to improve U.S.-China relations.
But none of these seems like a good enough reason to get excited about EVK stock.
A Lack of Brand Appeal
According to the company’s website, Ever-Glory manufactures “middle-to-high end casual wear, outerwear, and sportswear brands” for women.
However, women around the world tend to prefer identifiable Western brands. To support that statement, look at what Josh Enomoto wrote recently about the outperformance of Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU). “Those who have money during this crisis prefer well-known, in-fashion brands.”
All of this is to say that I believe the recent volatility of EVK stock has been caused more by short-term speculation than a passionate belief in the appeal of the company’s brand.
If Not Now, When for EVK Stock
I give Ever-Glory International credit for being consistent in reporting its earnings. Not all Chinese stocks reliably deliver quarterly earnings reports. However, that also means there’s a fair amount of data to look at when it comes to Ever-Glory, and the company’s results have been mixed.
Prior to 2019, Ever-Glory was posting consistently profitable quarters and steady revenue. But EVK stock was showing signs of slowing down prior to the onset of the global pandemic. And certainly the company has been as affected as any by Covid-19.
That being said, the track record of EVK stock does not make me confident that the shares will break out over the long-term. For the better part of the 21st century, it’s been trading as a penny stock.
That doesn’t mean its finances have been mismanaged. In fact, by most accounts, Ever-Glory is in solid financial shape despite the pandemic.
However, the company surviving the pandemic is not enough of a reason for investors to get excited about its stock. It should take more than that, even in these times when stocks can move higher on no discernible news.
On many occasions, I’ve mentioned that I generally write for investors, not traders. EVK is a low-float stock that may be an ideal option for day traders, but I don’t see it as a worthwhile investment.
When a name has been a penny stock for the better part of a decade, there’s usually a reason for that. When it comes to Ever-Glory, I believe much of the reason has to do with its inconsistent profitability and revenue numbers in recent years. And since the stock doesn’t have a discernible trajectory, it just doesn’t excite me much.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.