VinFast (NASDAQ:VFS) stock is in focus following a Bloomberg article that compared the Vietnamese electric vehicle (EV) company to AMTD Digital (NYSE:HKD). Last year, AMTD increased by as much as 32,000% following its public debut. However, the high prices didn’t last long. HKD stock is down by 95% during the past year.
VFS stock has gained significantly since its special purpose acquisition company (SPAC) merger. At the same time, the company is unprofitable with a low trading volume. As a result, the low volume makes it easier to move the price of VFS stock. Bloomberg also notes that less than 1% of VinFast’s shares — or about 16 million to 17 million — are available for trading, making it more difficult to sell shares short. Total shares outstanding tallies in at about 2.3 billion shares, most of which are held by insiders.
“VinFast’s current valuations are unsustainable,” said Smartkarma’s David Blennerhassett. “And because there are so few VinFast shares available, anyone who buys, say 50,000 shares, will move the stock.”
VFS Stock Draws Comparisons to AMTD Digital
That said, VinFast is undoubtedly better positioned than AMTD. It’s founder, Pham Nhat Vuong, is Vietnam’s richest man and also the founder of Vietnamese conglomerate Vingroup JSC. Vingroup and its team of partners and lenders have invested $8.2 billion into the EV maker to fund its business operations.
While well-funded, buying a company at a high valuation is a recipe for disaster. Last year, VinFast sold 24,000 vehicles across the globe while posting a net loss of $2.11 billion and an operating loss of $1.79 billion. It’s total yearly revenue was $634.1 million, of which $525.1 million was attributed to the sale of vehicles.
VinFast’s valuation increased to as high as $190 billion, soaring path established traditional and profitable automakers such as Ford (NYSE:F) and General Motors (NYSE:GM). This is somewhat reminiscent of AMTD’s market capitalization rise to $204 billion on $25 million of revenue, outpacing companies like Morgan Stanley (NYSE:MS) and Wells Fargo (NYSE:WFC).
As a general rule, I tend to stay away from new companies on the market, as they will likely trade in a volatile fashion irregardless of financial health. Based on VFS stock’s current valuation, it would be best to stay on the sidelines until the smoke has cleared.
On the date of publication, Eddie Pan 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.
