ML Dyeing Limited that dyes textile yarns literally faded the colours of its shareholders' lives in 2021.
Once flying too high on the bourses after its market debut in late 2018, its share price dropped more than 53% last year and the stock led the Dhaka Stock Exchange's (DSE) annual losers' table.
Three-fourths of the listed companies generated more or less wealth for their investors in the bull market of 2021, according to the EBL Securities Research.
Some of the losing one-fourth, like ML Dyeing, caused a significant capital erosion for the investors, and experts say they have left some lessons.
The top 20 losing stocks of 2021 generated negative returns that ranged from 53% to 22%, according to another research report by the merchant bank PLFS Investments Ltd.
Prior to the beginning of 2021, each of the top losers were trading at price levels much higher than they deserved in terms of their business fundamentals, said Chartered Financial Analyst Md Abdul Muktadir, chief executive officer of PLFS Investments.
Floor price averted market crash for top five losers
Many, including the top five losers, were stuck on the price floor the regulator had imposed in March, 2020 to avert a market crash after the outbreak of Covid-19.
Investors were not finding buyers above the floor prices, mostly due to the gap between the market price and company fundamentals then.
As soon as the floor was lifted in June last year, the stocks suffered sharp falls and failed to recover till the end of the year, Abdul Muktadir said.
The stories of the top two losers, ML Dyeing and apparel accessories maker SK Trims and Industries Ltd, are similar.
Both the companies had their stock market debut in 2018, enjoyed a secondary market hype in the following year and their business performance failed to justify the soaring stock price.
SK Trims' profits have been in fluctuation since its listing, while the earnings per share (EPS) curve of ML Dyeing was consistently down since it entered the bourses.
Big price hikes end in big drop
However, the price fall over 2021 made the stocks less pricey at the end of the year. The price to earnings (P/E) ratio that reflects how expensive a stock is against its profit figures, dropped below 26 from over 48 for ML Dyeing in a year, and for SK Trims it dropped to 16.4 from 24.6 over the same period.
"The top losers taught us that undeserving price hikes correct through big drops later," observed Muktadir.
"Interestingly, each of the big losers were among the top gainers in the previous few years, '' he said.
For example, Standard Ceramics shares had gained 362% in 2019, to push its P/E ratio at a dangerous level of 158.
It is theoretically assumed that a company would take years equal to its P/E ratio to pay back secondary market investors out of its EPS alone, if earnings remain flat.
Potentials for significant profit rise may allure investors to buy and hold stocks with a higher P/E Ratio, the investment expert said.
But, for Standard Ceramic the story later unfolded upside down.
Against an EPS of Tk1.56 in the fiscal year of 2018-19 it posted a massive loss of Tk6.32 per share having a face value of Tk10 each, in the following year of 2019-20.
And, the company is still swinging between meagre profits and big losses.
In 2021, investors lost 49% in Standard Ceramic stock.
The next name among the top losers is a misery for the stock market itself—Khulna Printing and Packaging Ltd.
After a few years of going public in 2014, the company halted production citing cancellation of its bond licence by the customs authorities.
Several efforts for production resumption used to help investors hope for a recovery in the meantime, but not anymore, as its founder fled the country following his scams as the chairman of a new generation private sector commercial bank.
Following at least four consecutive loss making years, the company posted Tk6.12 in loss per share in the 2020-21 fiscal year that dragged its net asset value per share down to Tk1.23 only against face value of Tk10.
Khulna Printing investors lost 43% of their capital in the last year alone.
Sea Pearl Beach Resorts Ltd, owner and operator of the popular Royal Tulip Hotel in Cox's Bazar, had its stock market debut in July 2019 and its stock price had been hyped up to Tk80 just before the pandemic outbreak.
Its revenue and profits dropped during the first wave of Covid-19, and bounced back later. But it was not enough to recover the stock price.
BD Thai Aluminium shares, despite a drastic earnings drop, had gained 186% in 2020. But the bounce back in earnings did not help the company retain the stock price in 2021 due to the continuation of the abnormally high P/E ratio and the stock caused one-third capital erosion of its shareholders.
Khulna Power Company, the first independent power plant of the country, is deprived of revenue as none of its power plants are in operations right now, following contract expirations. Sponsors gave a hand to the public shareholders through sharing minority equity of a new power plant with the listed company but the squeezed total scale caused a 34% capital erosion of the investors.
Paramount Insurance gained 135% in 2019 and 219% in 2020 but faced a stock price correction last year and its shareholders' capital decreased by one-third last year.
Despite a 31% negative return in 2021, low-cap jute product exporter Sonali Aansh Industries' P/E ratio soared to a further danger level of 756 at the year end.
Monno Agro and General Machinery Ltd, once a successful engineering company in the business of supplying and maintaining jute mills machineries, lost ground over the years. Now, it is trying to come back by making agro and other general machinery.
However, nothing proved enough to retain its stock price that had soared by 17 times over the 2016-2018 period. Its P/E ratio in 2021 soared to 358 from 290 despite a 30% drop in market capitalisation.
In 2019 and 2020, lossmaking Hakkani Pulp and Paper Mills' share price tripled as the company opened a tissue paper making unit for a comeback, but it again posted losses last year following a short pause in 2020.
Dominage Steel Building Systems failed to sustain its post-debut high stock price in January 2021 till the end of the year due to a moderate drop in profits.
Barisal-based spinning mill Sonargaon Textile is struggling to survive in business with declining turnover, piling up losses and bank liabilities.
Before the struggle intensified, its stock price soared seven times in the 2016-2019 period and with further fundamental deterioration the stock price was in decline over the last two years. Its investors' capital declined 29% in 2021.
Oimex Electrode, having its stock market debut in 2017 at Tk120, has been in a stiff downtrend just like its profit curve.
With a meagre profit jump in 2018-19 Samata Leather Complex shares gained five times in 15 months up to the end of 2019 and as soon as its profit declined again, the stock nosedived in early 2020.
Floor prices disrupted the fall in the meantime and later the stock continued its fall again.
Despite the fall in stock price, its P/E ratio soared to over 800 at the end of 2021.
Thanks to the fact that the P/E ratio is not constant, otherwise its shareholders would have to wait 800 years to be compensated out of the company's profits.
Extremely small-cap Northern Jute Manufacturing Company's EPS see a roller coaster ride with a meagre profit and loss. Having gained five times in four months up to January, 2018, the stock entered its correction and 2021 was a part of the downtrend.
GQ Ball Pen Industries, the maker of once a popular brand of ballpoint pens, Econo, was out of business long ago. Despite continuous big losses over the last four years, its stock price quadrupled in 2020, and faced the consequential 24% correction in 2021.
Once an IT Company Intech Online, later turned into an agro business Intech Ltd, is seeing continuous earnings drop and its stock price fell 23% in 2021 after gaining 175% in the previous year.
Associated Oxygen failed to justify its post-debut stock hype in 2020 and in 2021 its shareholders lost 23%.
Fine Foods, an aquaculture company, saw its stock price soar to Tk100 from TK8 in the 2015-2020 period and after closing the year 2021 at Tk50, its P/E ratio was at over 260.
Lesson: Don't chase big winners
"The top losers taught us a lesson – not to chase the big winners whose earnings do not support the price hike," said PLFS Investment CEO Abdul Muktadir.
Also, it is important to keep in mind, whether or not the earnings growth is a short term reality or the company is going to retain improved sales and profits, he added.
Most of the 2021 top losers abnormally gained in the previous years out of no sustainable improvement in their business fundamentals.
Like the top losers, the top gainers list of the year at the DSE also was widely dominated by small-cap companies.
Looking at the stock market behaviour, a layman might have a misconception that small companies are the best listed companies, said Md Moniruzzaman, vice president of the Bangladesh Merchant Bankers Association.
"In reality, it is completely the opposite," he added.
"Small-cap companies usually run with low profit margins and do not enjoy competitive advantages like the big names," said Moniruzzaman, managing director of a leading merchant bank, IDLC Investments Ltd.
"Stock prices should reflect a company's business reality and performance," he said.