People often deride startup valuations by saying that the true value of a company can’t be determined by private investors, but only by the public markets. But as it turns out, public markets might be even more irrational.
Bombay Oxygen Investments’ stock price has been on a tear all of last month. In late March, the company’s stock traded at around Rs. 10,000, but rose steadily through April. Yesterday, the company’s stock traded at Rs. 24,000, representing an astonishing 133% rise in a month. The reason for the stock’s surge? The word ‘Oxygen’ in its name.
Over the last month, as the second wave of the coronavirus pandemic had hit in India, the demand for oxygen to be given to critically ill patients had spiked. As hospitals had overflowed with patients, there were shortages of oxygen cylinders. This appears to have promoted investors to buy shares in Bombay Oxygen Corporation, hoping that the increased demand for oxygen would help the company make more sales.
But as it turns out, Bombay Oxygen Investments has nothing to do with oxygen — it is a non-deposit taking non-bank financial company. Until 2019, the company did produce gases including oxygen, but has since given up that businesses, and now works with financial products. “The Company owns substantial financial investments in the form of shares, mutual funds and other financial securities and the income from such financial investments is the source of revenue of the Company,” the company said.
The spike in the value of Bombay Oxygen Investments’ shares was so unusual that the BSE even wrote to the company seeking a clarification. Bombay Oxygen Investments then told the stock exchanges and investors that the movement in the share price of the company was market-driven, and the Company was in no way connected with any movement in price. In spite of the clarification, which had come on 8th April, Bombay Oxygen Investments’ stock is still solidly above its value from just a month ago. Which just goes to show that the wisdom of the crowds might not always work, especially in the financial markets.