What happened

Shares of the Hong Kong-based investment bank Magic Empire Global Limited (MEGL -1.97%) traded as much as 25% higher in pre-market trading today before giving up most of those gains as the wild trading volatility on the stock continued. The stock finished the day slightly down.

So what

Since going public last Friday, Magic Empire has been on a wild ride. Shares listed for $4 then exploded all the way up to nearly $236 before falling significantly back down this week. Shares currently trade at around $12.30.

Magic Empire is a fairly small company and only sold about 5 million shares in its initial public offering (IPO) for a total amount of $20 million. Given the low float, it looks like retail traders, as they have done before, drove up the stock with heavy purchase volume to manipulate the price. Then they quickly sold, likely taking huge gains.

But the company, which was launched in 2016, is still pretty small. Magic Empire had revenue of about $2.2 million in 2021 for a profit of just $203,000.

This isn't the first small IPO out of Hong Kong or China that has exploded like this and then traded with volatility. According to Bloomberg, it has happened seven times this year including to the company AMTD Digital, which went public in July and saw shares rise from $13 to $1,679 before now settling to around $217 per share.

Now what

The price action on Magic Empire clearly has nothing to do with company fundamentals and is a result of erratic trading. I would avoid the stock.