FE REPORT
Share prices of two junk stocks -- Meghna Condensed Milk Industries and Meghna Pet Industries -- are soaring 'abnormally' despite incurring huge losses and non-payment of dividends for a long time.
Junk stocks have also frequently featured on the top gainers' list in recent days.
A company's stocks are termed as junk when its commercial production is shut for six months in a row, fail to arrange annual general meetings on time or fail to disburse dividends to shareholders.
In the last one month, share price of Meghna Condensed Milk jumped almost 40 per cent to close at Tk 35.30 on Thursday. It was also the top gainer on the DSE for the last two consecutive days.
The 'Z' category company's share price more than doubled in the last one and a half months since May 25 despite incurring huge losses and not giving dividends for a long time.
The company has reported a net loss of Tk 85.44 million in nine months for July 2021 to March 2022 as against loss of Tk 84.22 million in the same period of the previous year.
Besides, Meghna Condensed Milk incurred a net loss of Tk 132.17 million for the year ended on June 30, 2021 while the company's liabilities exceeded its total assets by Tk 442.14 million.
"During the several years the Meghna Condensed Milk is incurring net loss and also showed negative retained earnings, negative net asset value per share, negative net profit," according to its latest auditor report.
The report gave an opinion that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern.
In spite of poor financial condition, its unusual price hike prompted the DSE to serve notice on the company several times during the last three months.
The company, however, in responses said: There is no undisclosed price sensitive information for recent unusual price hike and increase in the volume of shares transaction of the company.
Even its share price rose 9.97 per cent further on Thursday in the bearish market.
Share price of Meghna Pet Industries, another junk stock, also rose 25 per cent in the last one month to close at Tk 38.30 on Thursday. Its share price rose 4.90 per cent on Thursday.
Following the 'abnormal' price hike, the DSE served show cause notice on the company on July 12. The company replied to the DSE that there is no undisclosed price sensitive information for the recent unusual price surge.
Meghna Pet Industries has reported a net loss of Tk 2.21 million in nine months for July 2021 to March 2022 as against loss of Tk 2.40 million in the same period of the previous year.
Market insiders blamed price manipulation due to a small volume of shares being behind the artificial crisis.
Meghna Pet Industries' paid-up capital is Tk 120 million and total number of securities is 12 million while Meghna Condensed Milk's paid-up capital is Tk 160 million and total number of securities is 16 million.
Some companies with low performance records also made their way into the top gainers' list of the DSE frequently, riding on a rumour that the investors are putting money in the securities, said a stockbroker.
"The influential investors by disseminating rumours are trying to manipulate the prices of shares of many low-profile companies in the falling market to make quick-profit," he said.
He said the investors are chasing these stocks without conducting any proper analysis, as they see continuous rise in values.
"If these stocks face corrections, investors will be the ultimate losers," he said, adding that the investors should be careful about buying junk stocks in order to avert any misfortune.
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