Yusuf Flour Mills, a little known SME stock, has been flying high once again on the Dhaka Stock Exchange (DSE), leaving many well-performing stocks behind.
The stock price jumped an astounding 86 per cent or Tk 1,307 each share in just two months to Tk 2,830 per share by Thursday, becoming the second-most expensive stock after Reckitt Benckiser of the main board.
The DSE served a show-cause notice to the company on Wednesday, enquiring whether there was any price sensitive information behind the unexpected rally.
The stock jumped 4.81 per cent further on Thursday when the overall market was gloomy.
Company secretary Md. Shahedul Islam said there was no information that might influence the stock movement on the SME platform of the DSE.
While Yusuf Flour's stock escalated at a remarkable pace, the number of trade and trade volumes involved during the daily sessions were insignificant. That made market analysts suspicious about price manipulation.
In many cases, it took an exchange of less than 10 shares for a significant jump in the stock price.
The stock soared at a time when many good securities have been enduring price erosion.
"The trading pattern looks unusual," said Md Sajedul Islam, managing director of Shyamol Equity Management, adding that without manipulation, such a kind of price elevation is not possible.
General investors usually do not trade one or two shares, he said.
The small volume of shares indicates that the price increase happened artificially, said Mr Islam.
The total number of shares of Yusuf Flour is only 0.60 million, of which 53.88 per cent is held by its sponsors, according to the DSE data.
Mr Islam explained how such a manipulation job is done.
A certain group of people might have purchased a majority of its shares. They have traded shares within the group to create a demand for the stock. When general investors will join the rally, the fraudsters will offload their holdings.
Those, who drove the price up by buying a few shares, will extract profits through selloff of overvalued shares in hundreds or, maybe, thousands.
The rapid price surge took the company's market value to Tk 1.64 billion whereas its paid-up capital is a mere Tk 6.07 million.
The company's present share price is unusually high, compared to its fundamentals -- its earnings and dividend yield remained low, said Prof Abu Ahmed, a former chairman of the economics department of the University of Dhaka.
The big companies in the main market, with excellent reputation, strong earnings, and handsome dividend records, have failed to attract investors amid the prevailing market volatility.
Yusuf Flour's dividend yield, meaning how much the company paid in dividends for a year relative to its share price, stood at 0.04 per cent only for FY23.
That means the money injected into the stock would hardly have any scope of creating value for investors.
The dividend yield also shows how much an investor can expect as future income from the investment made in Yusuf Flour at the latest price.
At the end of Thursdays' trading, the price-to-earnings (PE) ratio of Yusuf Flour stood at 514, when latest quarterly earnings are taken into consideration.
The overall DSE market's PE ratio of around 12.6 indicates that Yusuf Flour's stock is highly overpriced. A high PE ratio poses high risk to investors.
Yusuf Flour saw an unusual price hike after the dividend declaration in December 2022. Its stock skyrocketed almost 23 times in a single day to Tk 594.40 per share from just Tk 26.10 per share as there was no circuit breaker for the stock that day due to corporate deceleration.
The SME stock peaked at Tk 3,050 per share in October last year without any valid reason.
Yousuf Flour's stock price is rising too fast and the regulator should find out whether there were any fraudulent activities, said Prof Ahmed.
Meanwhile, Yousuf Flour's net profit more than doubled year-on-year to Tk 4.70 million for July-December 2023.
The auditor of the company cast serious doubts on its "closing inventories" worth Tk 472 million in FY23 and cash in hand of Tk 28.86 million, which they believed to have been overstated.
Yusuf Flour was listed on the DSE in 1987. Because of poor performance, it was sent to the over-the-counter (OTC) market in 2009. In July 2022, the company was relisted on the SME board.
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