In Retrospect of Gloves Stocks in 2021

I am sure many have heard of the booming hot gloves stocks in 2020. Everyone was talking about Top Glove, Hartalega, Supermax, and Kossan and how they are riding them to the moon. Amidst the craze, many ignored the sky-high valuations of these companies, and continued to buy them. In some ways, I disagreed with the high financial valuations of these companies but I know better not to go against the market. Everyone will be crazy for gloves no matter what, and when the craze dies down, people who have bought gloves at the peak of it will suffer heavy losses. That is how speculative bubbles work.

Recent news on vaccine and the recovery of the economy, have massacred the gloves stocks in the past few weeks. The Edge estimates that the big 4 gloves companies have lost almost RM23.3bn since the beginning of the year. This piece will try to provide some context on gloves stocks now and properly inform how we should think about them.

Gloves stocks rose to sky high valuations, reaching their peaks by August and September 2020

Hartalega, Kossan, Supermax and Top Glove mostly reached their peak share prices in the middle of the pandemic, during the period of July to August 2020. Supermax rose the most by a whopping 1326%, followed by Top Glove at 426%, Kossan at 275% and Hartalega at 214%. However, since then, they have steadily declined, losing almost half of their peak values by Mar 2021.

Source: WSJ

Gloves stocks valuations (price earnings ratio) were too high during their peaks, and were unsustainable

At their peaks, gloves companies were trading at around close to 50 times to 160 times, defying any logic or fundamentals. Hartalega was trading at 158.5 times at one point, while Supermax was trading at 108.0 times. These valuations proved to be unsustainable also as more and more people realise how unrealistic valuations at, thus currently they are only trading at the normal ranges or P/E ratio of about 10 times. As they say, the higher prices go, the harder they fall.

Source: WSJ

At this point, gloves stocks does look slightly undervalued but the damage has already been done with the stocks crashing when vaccine news came out

When vaccine and economic recovery news came out recently, most investors became aware that gloves are not the “hot” stocks anymore and have exited most of their investments in gloves. While many have made money out of gloves, many have also made losses on them. This is particularly concerning for people who bought gloves during their peaks, as it would mean they would have taken a big hit on their investments.

Gloves at this point in time does look slightly undervalued especially Supermax trading at 4.7 times. The selling have been overdone but this is the nature of chasing stocks such as these. It is similar to gambling in Genting.

That said, this is a good wake-up call to not get caught up in the craze and greed. Investing is still best done through being cautious

Right now, gloves stocks still have strong fundamentals going for them. Many health organisations forecast that the pandemic will still be around until next year. There is still a strong underlying demand for masks and gloves as governments would need to prepare for future pandemics also.

That said, it is important to be cautious when even the shopkeeper is talking about gloves stocks when you go and buy your groceries. That is the nature of how speculation and bubbles form today.

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An economist and an investor who is highly interested in the realm of macroeconomics and finance, and how to combine them together

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Ho Su Wei

Ho Su Wei

An economist and an investor who is highly interested in the realm of macroeconomics and finance, and how to combine them together

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