What happened
Shares of TOP Financial Group (TOP 4.60%), an online brokerage business based in Hong Kong, had exploded nearly 633% higher as of 1:49 p.m. ET today. At one point earlier in the session, the stock was up an incredible 1,182%.
So what
While there is no definitive reason behind the huge move, it seems like it is largely being driven by meme-stock speculation. The popular subreddit WallStreetBets (WSB) had reportedly been discussing the stock on its daily discussion board and WSB has certainly been behind many meme-stock run-ups in the past.
TOP Financial went public last year and, according to its website, the company specializes "in the trading of local and foreign equities, futures, and options products." It largely generates revenue by earning commissions on futures contracts.
TOP Financial is one of several IPOs out of Hong Kong that has seen its stock lift off (AMTD Digital comes to mind). These companies tend to have small public floats, so heavy trading volume can get the stock price moving in a hurry.
TOP Financial's public float is only 2.56 million shares. Furthermore, more than 12% of the float is shorted, so this is another thing that can make the stock jump because it can lead to a short squeeze.
Now what
For the six months ending Sept. 30, 2022, TOP reported net income of $1.84 million, which is actually up 112% year over year. That's some good growth, but the company now has a market cap of $5.89 billion, meaning it trades at more than 1,600 times annualized earnings.
Given that the stock is now way overvalued and the volatility that will be involved due to the small float and it being a meme stock, I would avoid TOP Financial.
