BrainChip's rally stirs the bubble-meter
Jonathan Shapiro and Vesna Poljak
Sep 10, 2020 – 2.09pm
Theemergence of Facebook stock-tipping favourite BrainChip Holdings as an ASXunicorn has convinced some market watchers that the speculation taking over theAustralian market is now at world-class levels of hype without substance.
BrainChip shares advancedslightly on Thursday, for a return this week alone of 53.5 per cent. The shareslast traded at 76¢, equivalent to $1.2 billion in market value.
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It'salmost impossible to short the stock because there aren't enough institutionalinvestors on the register. Karl Hilzinger
The Alex Waislitz, RegalFunds Management and Metals X-backed "pure-play AI company" isdeveloping a neural processor that it claims mimics brain architecture for edgecomputing applications. It got a speeding ticket from the ASX on Tuesday butcould not explain its share price performance.
BrainChip's rally caught theattention of Sujit Dey from Credit Suisse's hedge fund sales desk, who admittedhe still doesn't understand what it does even after reading its filings.
"This situation definitelytakes the cake when it comes to bubble indicators in this market," Mr Deytold clients in an email circulated on Thursday morning. "I thought I’dseen it all!"
As far asMr Dey could discern, the company generates $US32,000 of annualised receiptsbased on its June quarter cashflow statement (which showed $US8000).
"I don’t care how hot thesector you are operating in is or how big the [total addressable market] is buta company that is generating $US32,000 of annualised receipts should not betrading on a $1.2 billion market cap."
Not even GetSwift got past $700million, he recalled.
It's almost impossible to shortthe stock because there aren't enough institutional investors on the registerto provide their securities for lending. Commsec and Openmarket dominate thetrading volume according to Mr Dey, which "gives a good indication of thetype of buyers that are moving this stock".
'Minnow to unicorn': BrainChip tops $1.4b valuation
One fund manager said they triedto secure stock to borrow but "there is none available, so that helpsexplain why no one is stepping in to sell it".
Fund managers proffered no learntopinion of BrainChip, but Chris Prunty from QVGEquities said: “Chasing momentum without fundamentals endsbadly.” QVG's long-short strategy was crowned the number-one Australianequities strategy out of the 138 tracked in Mercer's survey of investmentmanager performance.
“Retail investors are lessvaluation sensitive than professional investors and tend to have shorterinvestment time horizons.”
Pengana Emerging Companies Fundco-manager Steve Black said there were a hundred such examples in a market that is awashwith stimulus where people had taken to share trading. His strategyhas a 15-year track record of outperformance.
"You can't actuallydefinitely decide on any metric what BrainChip is worth," he said."That perversely works to the advantage of these stocks. I can deny thatBHP or National Australia Bank is deserved of a 100 per cent rise in no time atall – that's nonsensical.
"Whereas you can't actuallysay it here, because it has no earnings, therefore there are no limits to whatis possible. Even if they're highly successful, it still might be 50 per centovervalued."
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