Hong Kong-based investment advisor Magic Empire Global (NASDAQ:MEGL) sought about $20 million from its Aug. 5 initial public offering (IPO). However, MEGL stock now has a market capitalization of around $3 billion.
Like AMTD Digital (NYSE:HKD) stock, which skyrocketed in value on its first day of trading, Magic Empire’s value doesn’t seem to be linked to any fundamentals. Since its opening run-up, HKD stock has lost a significant chunk of its value. Still, the stock has a market cap of around $100 billion as of this writing.
Here’s what investors should know about MEGL stock moving forward.
MEGL Stock: Inside the Empire
Magic Empire Global is one of many Chinese companies that has seen a spectacular opening day run-up this year.
In 2021, however, Magic Empire had revenue of just $2.1 million. Its sole operating entity, Giraffe Capital, says it offers “comprehensive corporate finance services” but seems to have sponsored few public offerings.
U.S. investors call plays like MEGL “meme stocks,” but Chinese investors have coined a different term: “demon stocks.” This is a reference to things that cannot be explained and could mean markets are being manipulated. That said, the rise at Magic Empire could also be due to its concentrated ownership. Chairman Gilbert Chan Wai-ho and CEO Johnson Chen Sze-hon own a combined 63% stake, according to Bloomberg.
Still, Hong Kong’s Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange have both issued multiple warnings about “ramp-and-dump” schemes that manipulate thin trading volume to inflate prices. Famed investor Michael Burry has also warned investors away from MEGL stock through social media.
What Happens Now?
MEGL stock is likely to go through the same process as AMTD. At some point, the stock will turn down. Those who got in early will also get out, leaving others to hold the bag.
As of the Nasdaq market opening today, however, that has yet to happen. Magic Empire Global is up 50% today, trading at around $145 per share.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.