The maker of networking equipment used in homes and data centers said its profit grew strongly last year, but its stock fell sharply on the news
Image credit: Bamboo Works
Key Takeaways:
- CIG Shanghai said it expects to report its profit rose more than 50% last year, boosted by improving margins from its growing wireless and photonics business
- The company’s stock fell sharply after the announcement, but still trades at an inflated P/E ratio of more than 100
AI has taken the world by storm, pumping up many associated stocks to levels that some say are dangerously overinflated. That might explain the market reaction to a strong profit forecast on Friday from recently listed CIG Shanghai Co. Ltd. (6166.HK; 603083.SH), showing the company’s strong growth in the first half of last year largely continued in the second half.
Investors reacted to the news by dumping CIG’s shares when trading began on Monday, the first day after the announcement. The stock opened down more than 8% and continued to trade weakly on Monday morning, showing that good news doesn’t always produce the desired effect. Even after the drop, the stock is still up 24.6% from its IPO price of HK$68.88 last September, when CIG raised a tidy HK$4.5 billion ($577 million) from the new listing.
The company has traveled down a long road to get to its current state, with a history dating back to the original telecoms boom that produced internet bubble of the 1990s. So, it seems only fitting that its stock is getting swept up in the latest bubble, which a growing number of market watchers are predicting could burst at any time.
The company’s Hong Kong stock currently trades at a price-to-earnings (P/E) ratio of more than 100, based on its latest profit forecast and current market cap, which looks quite inflated. By comparison, more traditional networking equipment makers like Cisco (CSCO.US) and AsiaInfo (1675.HK; 688225.SH) trade at far lower multiples of around 18.
CIG probably thought it would excite investors with its latest forecast, saying it …