SGOCO Group (NASDAQ:SGOC) is a conglomerate with four primary businesses — virtual reality, energy saving technology, mortgage lending and real estate investment. Based in China, the multihyphenate company was thrust into the spotlight in July thanks to a two-session performance that saw SGOC stock soar 675%.
But just one day after closing at $20 on July 12, shares were worth less than half that amount. All for no apparent reason. You guessed it, SGOC is a meme stock.
The company faces obstacles including a ramp-up in Chinese government regulation and the increased risk of Chinese stocks being delisted from American exchanges.
The latest challenge for SGOCO Group has tied key shareholders to an international fund fraud scheme operating out of Hong Kong. That news has had shares sliding, the latest hit being an 8% drop on Friday.
Is SGOC stock worth considering for your portfolio? Or are there too many red flags to ignore?
Meme Stock Performance With Offline Value
By pretty much any definition, SGOC has become a meme stock. This is a company that reported less than $5 million in revenue in 2020, but saw its stock rocket 675% in two sessions, for no apparent reason. No big deal signed, no earnings report. Just a lot of chatter on Reddit.
However, SGOC stock is more than just a meme stock.
SGOCO Group’s businesses have credibility. For example, its Century Skyway VR company partnered with Razer — a well-known premium PC gaming brand — to develop Razer’s OSVR open source VR gaming headset. The company’s real estate arm has investments in two Hong Kong properties and owns a 21-story Hong Kong building. Holdings in the world’s most expensive residential real estate market are going to pay off, no two ways about it.
Perhaps most promising of all is subsidiary Boca’s phase change energy storage technology. SGOC acquired Boca in 2015 and buildings that use Boca’s award-winning technology for heating and cooling significantly reduce their energy consumption, saving 40% to 60% on their electrical HVA bill.
Regulatory Challenges Both Foreign and Domestic
Regulation is something that potential SGOCO investors need to be aware of. As a Chinese company listed on an American stock exchange, SGOCO Group is at risk of delisting. That’s a few years in the future, but it’s there.
In addition, the Chinese government has been tightening regulations for tech companies based in that country. The crackdown has been pressuring Chinese tech stocks in general.
“SGOC: Multiple Arrests, Financial Fraud and Money Laundering”
The latest chapter in the SGOC stock story resulted in several days of losses. As InvestorPlace contributor Chris MacDonald pointed out, a report from Wolfpack Research has caught investors’ attention.
Titled “SGOC: Multiple Arrests, Financial Fraud and Money Laundering,” the report alleges that three of the company’s “key people and largest shareholders” were arrested by Hong Kong police last December. They have been charged with conspiracy to defraud and money laundering, with M&A activity disclosed in the company’s SEC filing said to be related to the draining of assets from an HKIF Fund controlled by two of the shareholders.
Whatever happens here, two outcomes are all but assured. Scrutiny of SGOCO by the Chinese government will increase, as will short-term volatility for SGOC stock.
The Bottom Line on SGOC Stock
Every investor has a different tolerance for risk. With everything going on around SGOCO Group — its meme stock status, the fraud investigation involving shareholders, crackdowns by Chinese regulators, and the risk of delisting — this is a company that has many risk factors.
At the same time it earns a “B” rating in Portfolio Grader. The businesses this company is involved in all have potential. And despite the downward spiral it’s been caught in since mind-July, SGOC stock has still posted growth that’s nearing 300% so far in 2021. That’s the kind of performance that’s hard to ignore.
Are you onboard for some risk, with the patience to wait out short-term volatility? If so, an SGOCO Group investment has potential for significant returns.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.