We have talked in the past about the ‘Stealth IPO’ – small, low-float, under the radar IPOs run by a small group of underwriters such as Boustead Securities, Sutter Financial, and Network 1 Financial. These IPOs debuted unannounced, usually priced between $4-5 with floats of 5M shares… then proceeded to rip up through multiple halts to reach valuations of $20, $70, even $100 or more in the days following the debut. Standouts include WNW, TIRX, CPOP, UTME, EJH, and others. IPO Warriors caught onto the trend early, and we reaped massive gains on many of these trades.
These appear on the surface to be some kind of money laundering stunt to transfer Chinese capital out to Western accounts, but with the crackdown on Chinese IPOs, this method has been all but shut off to wealthy Chinese: who now, more than ever, are desperate to expatriate their funds into foreign banks. And so… the Stealth IPO has gone incognito.
The first example we saw was FCUV – a Boustead underwritten uplisting of a 5G company that didn’t appear to have much connection with China, until you check out their website and review their “Team”. Well, FCUV ran up from about $6.75 on it’s uplisting to a high of $25 within one day. It now trades at $8.66
After that, I predicted that we’d see another Boustead lead uplisting or secondary offering for a random, low float Chinese stock that would produce a similar run up, and I think I may have just found it.
So this company went public in 2017, and in the first week following its IPO, it debuted at around $6 and ran up as high as $32, and has since dropped to trade in a range of just $2-3 per share. The float is just 9.67M shares, and it has made random spikes as high as $14+ on a single day in February 2021. It closed at $1.84 on September 29, 2021 and then dropped over 30% today on the announcement of the offering: largely due to the fact that the offering is priced for 10M shares at just $0.89 per share (and includes 2 warrants for $0.01 each for each share purchased via the offering). The warrants have a strike price of $2.06, and are not going to be listed on any exchange, so undoubtedly, the offering was sold to buyers with close connections to the company.
For this kind of Stealth IPO scam to work, the operators of the scam need two things: a way to transfer fresh shares to buyers outside of the company without market interference, and they need a tiny float that they can control so they can run up the price without external shareholders dumping shares to keep the price down. With the Stealth IPO: they would simply float a small share count on a little known IPO, buy up the shares in the pre-debut, and then choke the price up to insane values through a series of halts until they could sell off and bank profits.
In this version, it appears that insiders have purchased over 7.2M shares over the past 12 months, whereby controlling roughly 75% of the 9.67M free float – it wouldn’t surprise me if they ate up a significant portion of the 1.36M shares that were traded today as the share price plummeted. Anyway, they control enough to initiate a surge in the price, and through the secondary offering, would have been able to put the excess shares in the hands of their counterparts outside of China.
So it goes without saying that the first part of this scam will be to push the price of the stock back up over $2.06 so they can exercise their warrants. If you can pick up shares at $1.30 or below, that’s a 50% upside from the current share price. But if they are up to their usual shenanigans… then they could run this up to $10, $30, $50, or more before they decide to pull the trigger on selling off the 37M shares they could potentially dump once they hit their mark.
The company I am looking at is a pretty suspicious looking company that ostensibly sells pet food in China: basically, dog crap as far as corporations go, but for this play, the worse it looks on the surface, the better I like it as a setup. The company is called ‘TDH Holdings’ and the ticker you’re looking for is PETZ.
I see it like this: if this is really a genuine company raising money to fund acquisitions, as stated in their Form 6-K filing, then it’s probably not a great investment: I mean, they basically priced the newly minted shares at $0.30 per share to raise a measly $10M: which really, makes no sense.
So I’m betting that the downside is somewhere around $0.80-1.00, but more likely, the game runners on this stock will find a way to push this up to $2.06 (like I said, a 50% win right there). Beyond that, we’re looking at a potential runaway train that could go parabolic – my hypothesis is, after all, that this is the newest incarnation of the Stealth IPO.
One word of caution… once the game runners decide the jig is up, this will fall like a deck of cards. I am already in for a mid-sized position, and will be taking profits off the table if this does start a run up through a series of halts. I don’t have a target price, but once we see two halts, I expect we’ll see more: but will be selling off parts of my position out of each halt.
NOTE: This is NOT financial advice, and I am not a financial advisor: this content is meant only as information. Trading stocks, especially stocks like the ones mentioned in this newsletter, is extremely risky. I have already established a position in the equities mentioned in this newsletter and may liquidate my position at any time. Trade your own trade, do your own due diligence, and good luck in the markets.