Sell SkyPeople: Recent Bullishness is Based on an Unsubstantiated News

Summary

SPU’s stock price has gone up by over 750% in the last few weeks

NASDAQ halted SPU’s trading of common stocks on July 15 and asked the management to explain the “unusual activity”

SPU said in a press release that the recent bullishness was due to an unsubstantiated rumor in the domestic press

The current price level offers an excellent opportunity for secondary investors reduce their exposure

Company Overview

Xi’an, China, based SkyPeople Fruit Juice Inc (NASDAQ:SPU) is a holding company trading publicly on NASDAQ. SkyPeople Fruit Juice Inc is involved in production and sale of fruit juice concentrates through its two wholly owned subsidiaries, Pacific Industry Holding Group Co. Ltd. and Harmony MN Inc.

Besides fruit juice concentrates, SkyPeople Fruit Juice Inc’s operational arms also produce fruit flavored beverages, including fruit ciders, and various other fruit related products.

SkyPeople Fruit Juice Inc mainly sells their products in the domestic Chinese market. However, they are also engaged in exporting to meet the global demand of apple, pear, and kiwi fruit concentrates via their worldwide distribution channel.

Over the last few years, one of SkyPeople Fruit Juice Inc’s juice brands, Hedetang, have gained prominence in the international market.

As of July 27, 2016, SkyPeople Fruit Juice Inc had a market capitalization of $39.68 million and employed 450 people to run their operations.

Analysis of Recent Price Movements

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Figure 1: In the first two quarters of 2016, SkyPeople Fruit Juice Inc ‘s Stock Price Went Down by 60.5%

On January 4, 2016, SkyPeople Fruit Juice Inc’s stock was trading at $5.36 per share, which declined to $2.11 per share by the end of June 2016, representing a 60.5% decline in the first two quarters of the year.

However, Since the start of July, the stock price found a sudden bullish momentum that pushed the price to as high as $18.22 per share on July 25, representing a 763.5% increase within a few weeks.

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Figure 2: During the Last Few Weeks, SkyPeople Fruit Juice Inc’s Stock Price Has Gone Up by 763.5%

Over the last two days, the price has come down a bit and currently trading at $13.01, still representing a 515.1% increase.

Although the stock price of SkyPeople Fruit Juice Inc experienced a phenomenal bullishness in July, there were no substantial fundamentals behind it.

As a result, on July 15, NASDAQ placed a trading halt on the company’s common stocks and requested an explanation from the SkyPeople Fruit Juice Inc management regarding the recent price movements.

In response, on July 18, SkyPeople Fruit Juice Inc issued a press release saying that the recent bullish moves of the company’s stock price happened due to a rumored news published by a Chinese web portal called EGD1319.com.

According to the press release, EGD1319.com said that the Future World Group has “successfully gained a listing on Nasdaq by acquiring SkyPeople and that it had become the controlling shareholder of SkyPeople.” However, SkyPeople Fruit Juice Inc clearly denied the news and said that “this online news item is inaccurate.”

What Actually Happened

On July 10, the British Virgin Islands based Future World Investment Holding Limited and the CEO and largest shareholder of SkyPeople Fruit Juice Inc, Mr. Yongke Xue, signed a share purchase agreement to sell Mr. Xue’s shares to Future World Investment Holding Limited.

However, while they did sign a share purchase agreement, the actual sale requires the board’s approval. SkyPeople Fruit Juice Inc clearly mentioned in the press release that “ownership of Mr. Xue’s common shares have not been transferred to Future World Investment Holding Limited pursuant to the share purchase agreement or otherwise, and Mr. Xue remains the controlling stockholder of SkyPeople.”

They also cautioned their shareholders and vested groups by saying that “there is no certainty that the contingent conditions of the share purchase agreement will be met and the transaction between Mr. Xue and Future World Investment Holding Limited will be closed.”

Besides Rumors, SkyPeople Investors Have Nothing to Get Excited About

If the rumored share purchase agreement between the CEO and Future World Investment Holding Limited do not materialize, there is a good reason that the stock price of SkyPeople Fruit Juice Inc will return back to below $3 per share.

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Figure 3: SkyPeople Fruit Juice Inc’s Revenue and Net Income ((2011 – 2016))

If secondary investors bother to take a look at the revenue and net income trends of SkyPeople Fruit Juice Inc, it would be revealed that they are involved in a low margin business. The revenue curve suggests that SkyPeople Fruit Juice Inc is also a seasonal business, where sales usually go up during the last two quarters of the year.

However, it is worth mentioning that management has repeatedly failed to increase the net profit of the company during high sales months over the last five years, which is the one of the reasons their stock price has declined from near $22 per share in the start of 2013 to below $2.5 in June 2016.

Conclusion

As we mentioned in the company overview, SkyPeople Fruit Juice Inc only has a market capitalization of $39.68 million and it is rather easy to manipulate the stock price. Although Google Finance mentions the Beta of SkyPeople Fruit Juice Inc to be only 0.61, given the extremely volatile nature of these nano cap companies, this stock is not suitable for most investors.

If you happen to have a substantial stake in this company, we strongly suggest that you try to reduce your exposure at current market price, as there is a good chance that this opportunity to take ((any)) profit will cease to exist in the next few weeks.