Medtech stock dazzles on ZSE

THE bizarreness of penny stocks was on full display on the Zimbabwe Stock Exchange (ZSE) during the first quarter this year, as Medtech Holdings (Medtech) outperformed every other counter on the market after gaining 350 percent.
Shares in the company, which sells consumer goods, medical supplies and light industrial products, opened the year at $0,0002 and closed the first quarter at $0,0009.
The counter only traded in four single instances during the period under review but managed to gunner a market toping 350 percent increase in value.
Enock Rukarwa, a research analyst at FBC Securities Research, said “this is the beauty of investing in penny stocks”.
“Penny stocks cost as much as pennies but earnings on these counters are limited and attaining significant earnings demands buying shares in huge volumes,” he said.
Rukarwa said there was not much in the fundamentals of the company to warrant such gains.
“Fundamentally Medtech has been making losses from 2012 to 2015 due to various factors such as capital inadequacy and slow debtor repayments.
“Being a heavy importer Medtech has also been at the mercy of delays in foreign payments remittances to supplies, smuggled competing products and increased competition by unregistered operators,” he said.
He said the company however benefited from its low share price, and added that penny counters also do not have circuit breakers “implying that the price can increase by even 100 percent on a single day unlike blue chip counters whereby the price increase is within plus or minus 20 percent on a single day”.
Batanai Matsika, the research head at Morgan & Co echoed Rukarwa’s sentiments saying while “the Industry has potential and Medtech is especially position of the few companies that can give an investor exposure to the sector, small caps however do tend to move up and down easily”.
The total value traded in Medtech during the period under review was only $100,93. FBC Securities Research says these were all realised on the mobile trading platform C-Trade.
“The biggest challenge with penny counters like Medtech is liquidity. De-investing from a penny counter may be hard as one might not find buyers. More so it is difficult to sell large quantities of penny stocks as they are thinly traded,” Rukwara said.
“In terms of fundamental analysis and information availability, disclosure levels on such counters is usually anywhere from mediocre to non-existent. It will take more work to acquire the information that one could easily get from a large company,” he added.
Medtech is a manufacturing, retail, distribution and services company. Its FMCG division manufactures and markets personal care products, and the medical division produces pharmaceutical products for the wholesale distribution to retail pharmacies.
The company also supplies products for laboratories and services education and healthcare institutions.
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