We are now in that phase of the bubble cycle where pivoting to a sapphire results in unprecedented market cap gains.
Shares of Yulong Eco-Materials, a tiny producer of fly-ash bricks based in Pingdingshan, China, surged as much as 950% on Wednesday - forcing the Nasdaq to halt trading four times within the first 30 minutes of trading - after the company revealed that it had completed the purchase of the Millennium Sapphire, a 17.9 kilogram gemstone that Business Insider described as "an icon in the world of art and gems."
Indeed, Yulong shares soared while US indexes ended slightly lower on the day, weighed down by a sharp drop in IBM and other tech stocks. Cannabis shares, the bubbly investment trend du jour, also sold off.
The company paid $50 million for the stone (which it touted as a bargain in a press release).
"We are extremely pleased to have completed the purchase of this undervalued world class asset for $50 million," CEO Hoi Ming Chan said in a statement.
"The most recent appraisal for the MS (September, 2018) was $60 to $90 million. World wide news headlines of the then unnamed rough sapphire purported the value between $90 to $500 million in 1996 when it was discovered."
But in the buying frenzy that ensued, investors apparently overlooked the fact that the company is also in the process of spinning off its entire Chinese business, parting ways with its executives and directors, and relocating to New York, where it will henceforth be known as "Millennium Enterprises Limited."
Aside from this, the press release was devoid of information about the company's new business model. Unfortunately for all the trend-followers who piled into this stock (a group in which the algos are heavily represented, we imagine), it appears Yulong has gone all in on the stone.
Here's what the Wall Street Journal wrote about the company's sapphire-centric business model back in August, when Yulong first agreed to buy the stone from a consortium of investors who have owned it since 1998 (since then, it has only been displayed in public twice).
Yulong said it plans to take the sapphire on a world tour of museums, to develop documentaries, and to include the gem in the plots of feature films.
"We will develop the business and cash flows of the Millennium Sapphire through branding and licensing along with royalties and ticket sales through major museums world-wide," Yulong Chief Executive Hoi Ming Chan said in a news release announcing the deal.
As @SheepleAnalytics commented on Twitter, if traders were looking for any more evidence that the equity market is reaching peak froth, this is it.
We're in a bubble. A giant bubble. You don't need any more evidence than this— SheepleAnalytics (@SheepleAnalytic) October 18, 2018
Yulong Materials is now worth almost $1/2 billion after acquiring a sapphire
That's their business model. A sapphire
The sapphire tried kickstarter in 2016 and raised $11@zerohedge@TheBubbleBubble
They are divesting of all operations. The business model is the blue sapphire. That's all.— SheepleAnalytics (@SheepleAnalytic) October 18, 2018
I liked this bubble better when we were buying CryptoKitties.— SheepleAnalytics (@SheepleAnalytic) October 18, 2018
A closer look at the company's filings, undertaken by a group of twitter users commenting on the trading insanity, revealed some interesting details about the company's (soon-to-be spun off) China business. For example, the company's address (hopefully they'll consider investing in a P.O. Box when they get to New York).
I don't know anything about that company, but I love its address:— Mark B. Spiegel (@markbspiegel) October 18, 2018
Eastern End of Xiwuzhuang Village
Jiaodian Town Xinhua Area
While the Yulong funded its purchase by issuing shares, ensuring that it won't face intense cash-flow pressures, at least not in the short term, should investors' enthusiasm wane in the quarters ahead, at least Yulong has options..
You are missing the fact that it’s not just ANY sapphire. They are planning to list it on a block chain made of cannabis.— Brad Fortier, CFP® (@fortierfinance) October 18, 2018
On behalf of the team at Zero Hedge, we'd like to sincerely congratulate Yulong's investors and CEO Hoi on this acquisition. We can assure you, we will be first in line for the company's (inevitable) ICO.