Parallel-import vehicle specialist Cheetah Net Supply Chain Service (NASDAQ:CTNT) — which sources popular automotive brands in the U.S. to be sold in China — is enjoying a dramatically positive swing higher in the market. Interestingly, the rise in CTNT stock comes amid disappointing company-specific news.
On Monday, Cheetah posted its results for the first quarter, declaring that it sold 13 vehicles. This count compares very poorly to the year-ago quarter’s tally of 82 vehicles. Further, Q1 2024 revenue reached only $1.4 million, down sharply from $10.2 million one year ago. On the bottom line, the disappointing performance translated to a net loss of $600,000, up from a loss of $100,000 in Q1 2023.
Management cited challenging market conditions that began impacting the business in the second half of 2023 and have rolled over into the current year. The firm also mentioned that the “gross margin between the U.S. retail prices of select luxury car models and their wholesale prices in the parallel-vehicle market continues to be significantly compressed.”
If that didn’t raise enough eyebrows, Cheetah also announced a secondary offering. Per the company’s press release, it will offer 13.21 million shares of Class A common stock priced at 62 cents per share. Gross proceeds will amount to $8.19 million before fees and expenses.
CTNT Stock Soars Amid Low Float and Geopolitics
Despite the business and share dilution risks tied to CTNT stock, shares are managing to soar against a slow backdrop in the broader market. In early afternoon trading, shares have gained more than 240%. The question, of course, is why?
One of the biggest culprits may be the small float underlying CTNT stock, which is presently 1.54 million shares. Further, the average trading volume over the past 10 days stands at 127,110 shares while the average over the past three months is only 78,620 shares. In other words, it doesn’t take much for Cheetah to move higher under collective buying activity.
Perhaps fueling the contrarian bullish sentiment is that, according to Fintel, the number of shares available to short may be limited. That’s also evidenced by the extremely high short borrow fee of 81.91%. With the meme-trading frenzy still bidding up speculative shares, CTNT stock appears to be a downwind beneficiary.
Fundamentally, it’s also possible that President Joe Biden’s administration raising tariffs on various Chinese imports, including electric vehicles (EVs), may be contributing to Cheetah Net stock’s ride higher. With tensions escalating between the two biggest economies in the world, there may be speculation that Chinese buyers will want to acquire U.S.-sourced luxury cars before further geopolitical challenges arise.
Why It Matters
With a market capitalization of around $75 million, it’s fair to say that CTNT stock represents a risky venture. Nevertheless, on March 20, Maxim Group analyst Tate Sullivan issued a “buy” rating on shares with a $4 price target. Given that Tate called the move almost to the dot, investors may want to consider the analyst’s guidance.
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On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
