Addentax Price Swings Give Reason To Wait

Key Points

• Addentax price swings continue.
• There are details of the IPO that mean investors should exercise caution.
• There are better ways to gain exposure to China's garment industry. 

If you’ve been perusing Marketbeat.com’s proprietary penny stock screening tool you’ve likely seen the name Addentax (NASDAQ: ATXG) or the ticker ATXG on the list. This stock IPO’d without much fanfare but shot up by quadruple digits in the first session. This might signify that the company is just that awesome, but some factors suggest investors and traders use caution with this stock. 

What is Addentax? Addentax is a Shenzen, China-based garment manufacturer and logistics services provider. The two business directions may seem at odds but that is mitigated by the fact the logistics services, which include trucking and building leasing, are all focused on the garment industry. The company is incorporated in Nevada and IPOd in September 2022. 

Addentax Another In A String Of Mysterious IPOs

The Addentax IPO was brought to market by Network 1, a small NJ-based brokerage that has been in business since the early 1980s. The firm has a history of not only bringing small, Chinese-based microcaps to the US market but a history of run-ins with the SEC. While no allegations have been made or charges filed, the nature of the Addentax IPO and the ensuing market volatility has led, according to a Bloomberg article, NASDAQ to increase its scrutiny of smaller IPOs like this one. 

What makes the IPO so suspicious? Addentax reported $13 million in revenue for the most recently ended fiscal year, which amounts to a valuation of roughly $13 million if we apply the standard valuation major garment companies are trading for. The IPO listed the stock with a valuation of $25 million but the price action took the value up 2300% by the end of the first session. That put the valuation at a level greater than ⅓ of the S&P 500. News Corp (NYSE: NWS), the smallest component of the S&P 500 by weighting, has annual revenues in excess of $10 billion and its stock price is far more stable. Shares of Addentax gave up all of their initial gains just one day after the IPO and it’s been trending lower ever since. 

This is How To Get Exposure To the Chinese Garment Industry

If you want exposure to the Chinese garment industry the best way is to focus on the world’s leading garment manufacturers because they are heavily exposed to that industry. Among the best picks is V.F. Corporation (NYSE: VFC) which not only does more than $12 billion a year in sales it makes profits, pays a dividend, trades at a low earnings multiple, and has a very positive outlook for distribution growth. The company trades at only 12X its earnings and pays a safe dividend worth more than 6.25%. The company is a near-Dividend King with 48 years of consecutive distribution increases that point to stability.  

Levi Strauss (NYSE: LEVI) and Ralph Lauren (NYSE: RL) are also good names to own in the garment space. They both have well-loved brands, DTC channels, and eCommerce going for them as well as low valuations and stable dividend payments.

The Technical Outlook: Addentax Is Great, For Price Swings

The technical outlook for Addentax is bearish at this time. The massive price swing on the first day of trading has put a great amount of pressure on the price and there just isn’t a reason to buy this stock. While the price is rebounding in the current session, the move is in line with the downtrend and will most likely result in a new low in a few days to a few weeks.