VinFast Auto’s head-scratching rally came to an abrupt halt on Tuesday, wiping $83 billion off its market value.
Shares of the unprofitable and thinly traded electric car maker fell 44% in New York, snapping a six-day winning streak. The stock has risen faster than any other large-cap stock in the world, up 688% from its Aug. 15 SPAC listing to Monday’s close.
Despite the beating, VinFast’s market capitalization of nearly $107 billion is still bigger than the likes of BlackRock Inc. and FedEx Corp. .
The last time a stock with very little free float rose from relative obscurity to the ranks of the world’s largest companies, it didn’t end well for investors. A year ago, another U.S.-listed company with roots in Asia, AMTD Digital Inc., soared more than 32,000% in a matter of weeks, confounding market veterans. The paper value of the loss-making financial services company was at one point more than $400 billion, surpassing JPMorgan Chase & Co.
Since then, AMTD’s share price has plummeted by more than 99%, hitting a record low last week. Its current valuation is only $1.1 billion.
While VinFast and AMTD differ in key respects, their minimal free float and attractiveness to chasing momentum retail investors makes both vulnerable to extreme booms and busts.
“VinFast’s current valuation is unsustainable,” said analyst David Blennerhassett, who writes on the Smartkarma platform. “And because there are so few VinFast shares available, anyone who buys (say, 50,000 shares) will transfer the shares.”
This wild move has the attention of the whole of Wall Street, but VinFast’s backers have a reason for it.
It is one of Vietnam’s most high-profile companies, backed by the country’s richest man, Pham Yi Wang, who founded Vingroup JSC, a conglomerate that includes residences, hotels, hospitals and shopping malls. Over the past six years, the group, its affiliates and lenders have deployed US$8.2 billion to finance VinFast’s operating expenses and capital expenditures.
That sets it apart from AMTD, a Hong Kong-based financial services company that is little known even in its home market.
And because VinFast is so hard to short, its rally could revive if buyers step back in. Less than 1% of shares are available to trade, making it expensive for short sellers to borrow money.
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Still, it’s hard to justify VinFast’s surge on fundamentals alone. The automaker will sell just 24,000 vehicles globally in 2022, a fraction of the deliveries from Volkswagen AG and Ford Motor Co. Its net loss hit nearly $600 million in the first quarter and is expected to widen in the near term as the electric automaker ramps up vehicle production.
Whether or not Tuesday marks the end of the rally, it is a reminder that U.S. regulators and exchanges have highlighted the risks to thinly traded stocks after turmoil in new listings, including AMTD. Nasdaq said it was stepping up scrutiny of initial public offerings by smaller companies, Bloomberg reported in September. SEC Chairman Gary Gensler said last year that the agency was in a good position to delve deeper into the reasons for unusual moves.
“There are similarities in the rapid rise of VinFast and AMTD Digital in that they have smaller free floats and stock angles are also popular,” said Ken Shih, head of wealth management at Saxo Group Greater China. “Investors should watch out for price volatility .”
