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Why WiMi Hologram Cloud Stock Was Bouncing Back on Tuesday

By Jon Quast – Jul 28, 2020 at 3:55PM

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Even the best market-beating stocks soar and crash in the short term. Investors have to keep their eyes fixed on the long term.

What happened

Shares of WiMi Hologram Cloud (WIMI 11.53%) are bouncing back. The stock had fallen close to 70% from highs reached earlier this month. But investors got a little relief as the stock went up today without any news. As of 3:30 p.m. EDT, it was only up 4%. But it had traded 13% higher earlier in the session.

If you recently bought WiMi Hologram Cloud stock because you believe in the company's ability to profit from the exponential growth in the holographic market, then get used to volatility. This is what stocks do in the short term. Yes, even the best long-term market beaters.

A figurine of a bull stands opposite of a figurine of a bear.

Image source: Getty Images.

So what

WiMi Hologram Cloud was an obscure little company until the stock more than doubled in a single day earlier this month. This happened after an upbeat press report about the future of the holographic industry. The release said global holographic hardware sales are expected to grow at a 68% compound annual growth rate (CAGR) between now and 2025. And holographic software and content is expected to grow at a 69% CAGR over that span. Between hardware and software, it's expected to be a $500 billion industry.

Simply put, that's a massive addressable market for the tiny WiMi Hologram Cloud -- its market capitalization is less than $500 million. This opportunity clearly excited many investors. For example, the number of Robinhood users holding WiMi stock has increased roughly six times in July alone, according to data from Robintrack.

Some shareholders may be getting antsy now that the stock has fallen significantly. But remember, volatility is normal when investing in stocks. For three examples of market-beating investments, consider the three-year returns for Amazon, MongoDB, and Netflix

NFLX Chart

NFLX data by YCharts

All three are handily beating the market as they chase their huge respective addressable markets. However, it's been anything but a smooth ride. The following chart shows the big drops along the way.

NFLX Chart

NFLX data by YCharts

Netflix, MongoDB, and Amazon have each fallen 30% at least once in the past three years. But those who have resolutely held have been richly rewarded. This is why you must know why you're holding the stocks you're holding. When we research stocks, we're interested in the company's progress and future profits. We pay little attention to the daily ups and downs of the stock price along the way.

Now what

In WiMi Hologram Cloud's corporate presentation, it discloses some potential competitive advantages. First, it claims its image processing technology is 80% faster than the industry average. Second, it says it has more existing clients than anyone else. Finally, it claims to have 132 patents, far more than the competition. These would be reasons to believe it's a solid candidate to capture a good portion of the $500 billion industry. If that's you, hang on despite the volatility. 

However, investors should proceed with caution. The original press release containing the gaudy CAGR numbers for the holographic industry appears to be from Access Wire. However, that Access Wire article lists WiMi as the media contact and source for the article. That's not an objective source and could be a major conflict of interest. In short, be skeptical of the industry projections. Look for third-party validation.

In my opinion, investors should wait before investing in hologram companies. I can think of many multi-billion dollar megatrends that never materialized. If the holographic industry is set to soar as WiMi claims, there will be plenty of time for that trend to visibly start playing out before investors commit their hard-earned dollars.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, MongoDB, and Netflix and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

WiMi Hologram Cloud Inc. Stock Quote
WiMi Hologram Cloud Inc.
WIMI
$0.86 (11.53%) $0.09
Netflix Stock Quote
Netflix
NFLX
$320.41 (1.09%) $3.46
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37
MongoDB Stock Quote
MongoDB
MDB
$160.17 (-1.09%) $-1.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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