Chinese mobile and electronic accessory manufacturer United Time Technology Co. Ltd. (UTME - Get Rating) made its U.S. stock market debut on April 6. The company listed 3.75 million ADRs on the Nasdaq Global Select Market, raising $15 million.  The stock opened its first trading session at $11, 175% higher than its $4 IPO price.

UTME shares  soared 2,583.3% from its IPO price in its first trading session to hit an all-time high of $107.33. The stock had an average trading volume of 14.31 million in the first trading session.

However, the company has been losing momentum gradually since, declining 24% so far.  So, here’s what we think could drive UTME’s performance in the near term:

Smartphone Market

The demand for cell phones and electronic gadgets has been high and rising since the onset of the COVID-19 pandemic, given their  roles in sustaining remote lifestyles. And while the advent of the 5G network standard has increased the demand for upgraded, state-of-the-art devices to support the next-generation network, a global semiconductor shortage has limited the industry’s growth potential.

According to a recent IDC report, smartphone shipments are expected to rise 13.9% year-over-year in the first quarter, ending April 2021, and 5.5% in the fiscal year 2021. However, the rising cost of raw materials and production are expected to maintain pressure on companies’ revenues and earnings.

Liquidity Risk

UTME is bleeding cash from its operations. The company’s trailing-12-month net operating cash flow and levered free cash flow stood at negative $1.33 million and $174,810, respectively. It has a cash balance of $113,250. However, with total debt of $3.68 million, UTME does not have sufficient cash flows to cover its debt and interest repayments. Its trailing-12-month debt/free cash flow ratio is negative 14.15. It has a covered ratio of 0.59, indicating poor working capital management.

Low Profitability

UTME’s trailing-12-month gross profit margin of 11.48% is 76.4% lower than the industry average of 48.6%. It’s trailing-12-month EBITDA margin of 1.43% is 89.7% lower than the industry average of 13.83%. Additionally, the company’s net income margin and levered free cash flow margin are negative.

Its negative ROE, ROA and ROTC values are significantly lower than the respective industry averages.

Premium Valuation

In terms of trailing-12-month EV/EBITDA, UTME is currently trading at 539.09x, which is significantly higher than the industry average  21.86x. The stock’s trailing-12-month EV/sales ratio of 7.70 is 66.8% higher than the industry average  4.62.

Also, the company’s 24.46 trailing-12-month price/book multiple is significantly higher than the industry average of 4.93.

Unfavorable POWR Ratings

UTME has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

UTME has a grade of F for Quality, and D for Value. The company’s higher-than-industry valuation and negative return on sales justify these grades.

Of the 71 stocks in the C-rated Consumer Goods industry, UTME is ranked #64. In total, we rate UTME on eight different levels. In addition to the grades highlighted, one can view UTME Ratings for Momentum, Stability, Sentiment, and Growth here.

There are 15 stocks in the Consumer Goods industry with an overall rating of A or B. Click here to view them.

Bottom Line

UTME looks extremely overvalued at its current price level considering its negative profitability and earnings. Many Wall Street analysts are comparing the stock’s  price gains  to the valuations seen in the dot-com era. Thus, the stock is best avoided now.

Click here to checkout our 5G Industry Report for 2021

UTME shares were unchanged in after-hours trading Thursday. Year-to-date, UTME has declined -7.82%, versus a 10.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

More Resources for the Stocks in this Article