Update 7th December : A reader pointed out that there might be a miscalculation on the site where the insider transaction is obtained. Hence the information here might be misleading. Will do another update once I look into the numbers the coming week.
One of the stock Mr Budget is holding is Razer, as you might noticed from our portfolio page.
Razer is a meaningful stock to Mr Budget, as he is an avid gamer. He is also a big supporter of the brand because Razer is founded by Singaporean Tan Min Liang.
At one point earlier this year, the stock price appreciated to a high of HKD2.18, marking an almost +45% gain for the stock counter.
However, the stock price has since then plunged over the past 6 months to a low of HKD1.19 this year.
I have been quietly looking at this counter and asking if I should average down since the counter is now in the red.
On the one side, the company has been showing yoy increase in revenue, and is actively investing in new areas of growth such as fintech etc. This is to open up new revenue streams. Because of these various investment activities, the company has not been generating profit, but is forecasted to be profitable in 2-3 years.
Razer is also operating in a high growth industry: the gaming space where price can be quite inelastic among hardcore gamers. To me, I really believe that Razer can be the new Apple, especially since some of their products are arguably better quality than Apple’s recent product.
Apple’s current market cap is at 1.15T, while Razer is only at 10B market cap, and there are tremendous market share for Razer to capture.
Besides that, Razer is also investing in the Fintech space, as if the gaming space is not lucrative enough for them. It is also moving into mobile gaming.
Here are some financial highlights from Razer:
- 1H2019 Net Revenue +30.3% to 357M
- 1H2019 Services Revenue +110.5% to 35.7M
- 1H2019 Net Loss Narrow from 57M to 48M
However, their share price kept dropping. Surely something is wrong.
As I dug deeper, I realised that the CEO has been offloading his shares in the market, and that disturbed me a fair bit.
According to Simply Wall Street, in November, both the CEO and the CFO have been offloading their shares at HKD1.40. The shocking part is that, the CEO sold US$117M worth of shares! While the CFO sold off almost US$4.4M worth of shares.
Disclaimer: Our only source of this insider trading is through Simply Wall Street.
Insider selling is usually an indication of the lack of confidence on the company’s upcoming performance, though it may be for other reasons (such as taxation purposes).
This is a huge red flag for me, and I wish I can drop the CEO an email to ask him why did he sell off his shares, especially since immediately after he sold the shares, the next day he gave an interview on CNBC stating that the company is in a great shape, and that they are continuing to invest in new growth areas.
I remember one thing I learnt from Fifth Person’s investment quadrant is that, you can observe a company by seeing if the management practice what they preach.
Why would the CEO and CFO sell their shares but claim that their company is in a good growth trajectory? In this case, something is clearly not adding up and my confidence is quickly diminishing.
I asked myself, does this have to do with the Hong Kong Riot? I highly doubt so as majority of Razer’s revenue comes from US and then Europe, followed by APAC, so the Hong Kong riot should have negligible impact on the counter.
So we will wait for the next financial update from Razer to see if they continue to see high segmental growth in their gaming revenue, service revenue as well as if there are any ROI from their various new growth areas.
Otherwise, we may be looking at cutting our losses on this counter.
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