GigaCloud (GCT) stock analysis: sell and don’t look back
GigaCloud (NASDAQ: GCT) stock price plunged hard this week after a research firm poked holes into its remarkable growth. It crashed to a low of $25.20, its lowest level since March 27th this year. It has moved into a deep bear market, falling by over 33% from its highest level this year.
Concerns about GigaCloud rises
GigaCloud Technology has been one of the most popular stocks in Wall Street this year. It has soared by over 445% in the past 12 months and by 63% this year. In this period, it has outperformed the S&P 500 index and other popular e-commerce companies like Amazon, Alibaba, and eBay.
This performance happened as the company continued to report stellar financial results. Its annual revenue jumped from over $122 million in 2019 to over $703 million in 2023. The most recent results showed that its first-quarter revenue rose from $127 million in Q1’23 to $251.1 million in Q1’24.
GigaCloud’s performance also coincided with an increase in its net profits, which jumped from $15.9 million to $27.2 million.
This performance, however, could be manipulated, according to a research by Grizzly Reports. In a long and comprehensive study, the researchers questioned the company’s website traffic, use of shell companies to manipulate sales, and even its acquisition of Noble House of bankruptcy.
According to Grizzly, GigaCloud’s website generates about 50 visitors per month from a peak of 1,000 during its IPO. It used a third-party website analytics company to find these numbers. However, using SimilarWeb we found that its website had over 520k visitors in February, March, and April. Most of those visitors were from China and the United States.
Grizzly argued that the company uses its shell companies to trade with itself and manipulate sales. It also noted that Noble House has continued to underperform, with its revenue plunging by over 70%.
Further, the report also questioned the company’s auditor, KPMG Huazhen, a company that has only audited one other publicly traded company in the US: Hailiang Education. Hailiang Education, a company that has been accused of fraud.
GigaCloud Technology will likely release a report denying these allegations. However, as I have written before, it is always risky to invest in unobscure Chinese companies because of the weaker audit policies and the rising geopolitical risks between the US and the country.
Many Chinese companies have been accused of fraud before. Nio shares crashed hard in 2022 after Grizzly Report warned that it was manipulating its books. It has never recovered and is now hovering near its all-time low.
Similarly, Luckin Coffee agreed to pay $180 million to US regulators to settle an accounting scandal. That explains why the stock has failed to retest its all-time high even after recording strong revenue growth.
GigaCloud Technology stock analysis
The daily chart shows that the GCT share price has plunged hard in the past few days. This retreat happened after the stock formed a double-top chart pattern whose neckline is at $25.20. In most cases, this pattern usually confirms a bearish breakout.
Worse, the stock has crashed below the 50-day and 25-day moving averages, meaning that bears are in control. It is now sitting slightly above the neckline of the double-top pattern. Therefore, the outlook for the stock is extremely bearish, with the next point to watch being at $20.
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