AMTD, HKD stocks are soaring ahead of earnings: time to buy?

AMTD Idea (NYSE: AMTD) stock price jumped sharply this week as a short-squeeze happened ahead of the upcoming earnings. The stock jumped to a high of $1.70, the highest point since February 10. Similarly, AMTD Digital shares jumped by over 22% on Tuesday and closed at $8.10. 

Short squeeze ahead of earnings

AMTD is a Hong Kong-based company that became popular in 2022 after it got listed in the United States. At the time, the stock went parabolic, pushing its market cap to over $200 billion, making it bigger than Goldman Sachs. At its peak, it was the fifth-biggest financial group in the world despite its negligible financial results, as we wrote here.

There were several theories for this surge. Some analysts argued that the rally was due to market manipulation considering that AMTD is a Hong Kong-based company. As such, there is a possibility that many investors and insiders were just pumping the stock. Other analysts pointed to the fact that some traders confused it with AMD, the giant semiconductor company. 

AMTD has a complex and confusing business structure. First, there is AMTD Group, which is an investment company based in Hong Kong. AMTD Group has a 90% stake in AMTD Idea, a company that invests in Chinese companies. Then, AMTD Idea has a 905 stake in AMTD Digital. 

As was expected, AMTD stock plunged sharply after the initial rally as initial buyers dumped the stock. Today, the company is valued at over $2.9 billion. AMTD Digital, which is a major owner of AMTD Idea, has a market cap of over $1.3 billion.

It is not clear why both AMTD and HKD stocks jumped this week. A likely reason is that AMTD Idea will publish its financial results on April 18. As such, analysts expect that the company’s business did well as Hong Kong’s reopening continued. 

The most recent results were better than expected. The company’s revenue came in at $55.41 million, which was ~$17 million higher than expected. Its EPS was 37 cents, 15 cents higher than what analysts were expecting.

Is it safe to buy AMTD and HKD stocks?

One of the Warren Buffett’s investment rules is to always invest in companies you understand. You need to know the products that a company sells and how it makes money. Also, you need to trust a company’s financial results.

For AMTD and HKD, it is difficult to understand the nature of these companies and how they make money in the first place. 

Like other Chinese companies, it is always impossible to trust their books. In fact, the most recent results the company published were unaudited, which makes them a bit tough to digest.

Therefore, despite the short squeeze, it would be hard to recommend investing in AMTD Idea and AMTD Digital. They are both high-risk assets that are thinly traded.