What happened
Chinese cloud computing provider Xunlei Limited (XNET 0.68%) is a puzzle. Last week, we mentioned how the stock had jumped 20% after the company reported earnings -- and how that jump made little sense, given that Xunlei's gross margins were plunging, while its operating expenses alone in the third quarter exceeded the entire value of the revenue it had brought in.
This week ... Xunlei is at it again. Shares jumped another 25% in early Tuesday trading and were still up a good 23.3% over yesterday's close as of 11:40 a.m. EST.
Xunlei stock has blockchain dreams -- and could turn into a nightmare for momentum investors. Image source: Getty Images.
So what
Why? Your guess is as good as anybody else's. There hasn't been a word's worth of news coming out of Xunlei since last week's earnings report -- which as I said, was not all that hot to begin with.
If you ask me, Xunlei's amazing stock strength probably owes to one thing and one thing only: management's revelation, in the course of reporting its disappointing earnings, that it has decided to turn itself into a company focused on "exploring emerging blockchain technology."
Now what
Momentum investors are going gaga over the prospect, giving little thought to precisely what kinds of "blockchain technology" Xunlei is interested in and whether its "exploring" will ever turn into any actual, sustainable (let alone profitable) business.
All we know for certain today is that Xunlei is a company with growing revenue but miserable margins, and no profits anywhere in sight. Some investors seem to think that's worth a 25% bump in stock price. I disagree.
