To meme or not to meme: Shengfeng stock on roller coaster ride in its first year

The niche logistics company’s shares have swung widely since their public debut a little more than a year ago, but may have finally settled at a realistic level

Key Takeaways:

• Shengfeng shares more than doubled just a few months after their IPO in March last year, then crashed and skyrocketed again, only to nosedive below the listing price
• Unlike its stock performance, the niche logistics company’s revenue is growing steadily, while its profitability is also improving

By Warren Yang

One nice thing about niche logistics specialist Shengfeng Development Ltd. (SFWL.US) is its steady profit growth, something not many Chinese companies can deliver these days. But that – or any of the company’s other business fundamentals – may not really have any bearing on the performance of its shares, which have taken on a life of their own in the year since the company’s IPO, possibly earning it a spot on the watch list of traders looking for quick, fat gains by dealing in so-called “meme stocks.”

It’s been just over a year since the company went public in the U.S. in March 2023, and the stock has experienced quite a few highs and lows over that time. It took Shengfeng shares a few months to more than double from their IPO price of $4 apiece. Then, they crashed as spectacularly – before going on an even stronger bull run to cross the $15 mark by early December, briefly making the company a “unicorn” by lifting its value above $1 billion.

As if that wasn’t dramatic enough, by the end of last year, the company’s stock subsequently crashed again and was down by more than a quarter from its IPO price. In other words, it lost more than 80% of its value in less than a month. What’s remarkable about these wild gyrations is that they happened in a near complete absence of news about the company, be it positive or negative.

Such wild movements in the absence of news harkens back to a flood of trading in meme stocks that were all the rage in 2021, epitomized by a huge run-up in shares of laggard game store operator GameStop (GME.US). A group of small U.S.-listed Chinese stocks staged their own 2.0 version of the phenomenon with similarly wild swings a year later.

Since its IPO, Shengfeng’s only press release unrelated to its financial reports was a June announcement saying it spent $1.5 million to purchase electric heavy-duty trucks. While the news may be a promising sign that Shengfeng is on the right side of Beijing’s push for green development, it’s hardly something that can spark a huge jump in the company’s stock price. In fact, the stock slid for days on end following the announcement, suggesting Shengfeng’s share movements aren’t based on company fundamentals.

While the company’s stock entered this year on a sour note, with all the gains in preceding months erased, its latest annual report, released at the end of last month, shows that the company’s business and profitability are both improving quite nicely.

Shengfeng’s net revenue increased about 9% to $404 million last year from 2022, on the back of orders from new customers, as well as growth in sales to older ones. And it improved its gross profit margin through efforts including outsourcing of transport services, a reduction of redundant departments and a “workforce optimization” program, likely a code name for layoffs. As a result, its gross profit increased 12%, faster than its revenue growth.

Better yet, it limited the increase in its operating expenses to less than 3%. That was partly because of the workforce optimization measure that led to a decrease in its marketing expenses. But Shengfeng’s administrative costs, which account for the bulk of its operating expenditure, grew less than 7% as well. Such tight cost-controls helped to drive a respectable 33% gain in its net profit. Last year’s revenue and profit growth rates were both faster than in 2022.

Niche focus

While Shengfeng made its stock market debut just last year, the company has been around for quite some time. It was founded in 2001, with a niche focus on services for businesses, instead of consumers. The company has three business lines – B2B freight transportation, warehouse storage and management and value-added services like collection and delivery, and customs declaration – but it generates the vast majority of its revenue from transportation services. Its customers include big names like Xiaomi, Schneider Electric, SF Express, Bright Dairy and CATL.

It’s not surprising that logistics and other supply chain-related services are in high demand in a country of China’s size with an advanced e-commerce market and thousands of factories that have earned it the moniker “the world’s factory.” China’s independent B2B contract logistics market was expected to grow from 832 million yuan ($115 million) in 2019 to 1.23 billion yuan by this year, according to third-party data included in Shengfeng’s IPO prospectus.

So, investors have good reason to have faith in Shengfeng’s prospects. But obviously, that doesn’t quite explain the erratic movements in its stock price. Its shares rose slightly following the release of its first post-IPO annual report. Since then they’ve traded both up and down, though on a much milder scale than the fluctuations last year.

One big factor that has enabled the wild swings is the relatively small size of its public float, or the proportion of its total shares available for trading. Shengfeng’s dramatic ascent last year didn’t go unnoticed by online investment communities. About four months ago, it was featured in a Reddit post about trading strategies for a number of stocks, which recommended going short on Shengfeng shares following their big rally. Reddit was also the place where many of the meme stock rallies from 2021 began.

After all the fluctuations, Shengfeng’s stock has settled down at a decent price-to-earnings (P/E) ratio of 14, although its price-to-sales (P/S) ratio is quite depressed, at just 0.38. Its P/E ratio is roughly in line with the 15.5 for Hub Group (HUBG.US) and 15 for Air Transport Services Group (ATSG.US), but much lower than 23 for Radiant Logistics (RLGT.US), among its global peers. Its P/E ratio is also roughly on par with the 13 for ZTO (ZTO.US; 2057.HK), generally considered one of the most efficient among China’s field of about a half dozen mainstream logistics companies.

So perhaps, Shengfeng’s current stock price finally reflects its true worth. But if its brief history as a publicly traded company is any indicator, that could change at any time if the meme stock community rediscovers its ticker.

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