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Creative soars 600% over seven sessions, prompts note of caution
CREATIVE Technology shares hit their highest notes in a decade on Monday, powered by hopes over its new audio product which some now caution may be overly optimistic.
The stock surged to S$8.75 at the close of trading, putting the day's gain at 71 per cent, with a cool 9.8 million shares changing hands. The counter went as high as S$9.77 in intra-day trade, touching that mark around 2.30pm.
The week-long rally has taken the stock to levels last seen in 2007. Creative is now worth seven times as much as on Feb 22, when shares traded at S$1.25 apiece.
On Monday, the stock also bucked the overall weakness in Asian markets spooked by the threat of a looming global trade war.
Creative's stock began surging on Feb 23, when it more than doubled in value - a development which prompted a Singapore Exchange query. The spike came after The Business Times broke the news on the company's forthcoming Super X-Fi product, which promises to deliver a "three-dimensional" listening experience mimicking how people hear in real life.
The market buzz about the potential of Super X-Fi increased when stock watchers briefly moonlighted as tech reviewers last week, when Creative hosted them to a demonstration of the device.
DBS analyst Sachin Mittal wrote on March 1 that the technology "could be a much-needed lifeline for the company", which has come under pressure from both premium competitors and cheaper Chinese manufacturers.
Creative recently posted a second-quarter net loss of US$4.2 million for the three months to Dec 31, 2017, on a 6 per cent year-on-year dip in revenue to US$20.9 million.
Mr Mittal pegged his base-case valuation of the stock at S$5.56 a share, with a revenue forecast of US$232 million for FY2020. The bull-case fair value of S$8.10 a share forecasts turnover of US$372 million.
Separately, CGS-CIMB analysts Yeo Zhi Bin and William Tng noted on March 1 that Creative was trading at a price-to-sales ratio of 2.9 times, against ratios of 2.5 times for small- to mid-cap technology stocks under coverage and 10.3 times for Hong Kong-listed gaming giant Razer.
But how long the excitement will last is anyone's guess for now.
Mr Mittal's report flagged the risk assessment of Creative as "high", on factors such as the possible inability to replicate Super X-Fi test results in real-life conditions and a potential failure to mass-produce the chip.
An analyst who declined to be named said in a phone interview that the stock's upward burst has been "a bit absurd".
"People are buying on the 2020 figures that DBS has postulated," the analyst said, noting that the numbers are estimates of turnover, not profit - and two years away, to boot.
CGS-CIMB's Mr Yeo told BT: "If a competitor suddenly announced a competing technology, this whole euphoria could quickly evaporate, just as rapidly as it was built up.
"On the other hand, if Creative manages to execute, then the sky is the limit, as we have seen from the other tech giants."
As far as Creative founder Sim Wong Hoo is concerned, it has found the holy grail of headphone audio. The Super X-Fi headphone holography is powered by a chip that fits into a slim dongle that can be plugged into most headphones or earphones.
Since January, Creative said it has presented its Super X-Fi to headphone makers and received validation. It also said it would sell the new chip to other companies. The Super X-Fi technology is powered by a new chip said to pack five times more computing and digital signal processing power than Creative's most powerful Sound Blaster chip, but consumes less than half the power.
Creative is best known for its Sound Blaster sound cards, but since that defining product, has struggled to find the same level of success.