VinFast: Significantly Overvalued

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VinFast: Significantly Overvalued

Seeking Alpha2023-08-25

VinFast's market cap of over $85 billion is likely the result of a small float.The company's financials are abysmal, with low revenue, deeply negative gross margins, a large debt load, and a negative ...

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MattK
·2023-08-25
Just crazy, still people buying into hype no matter the fundamentals. This will crash.
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Dongroco
·2023-08-25
It depends on what you are looking for
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aaffsmcjje
·2023-08-25
Yeap. Just short it
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This appears to be an overly optimistic valuation and is likely the result of a small float which will eventually get much larger. The company is in a terrible financial position and future dilution is likely. Even in a highly optimistic scenario the company will have difficulty growing into their current valuation. In our opinion, the company is overvalued and investors should stay far away from this stock.Meteoric RiseFor those of you unfamiliar with the company, VinFast is a Vietnamese EV startup founded in 2017 that is seeking to expand into North America as well as continue to sell in Southeast Asia. The company currently has a limited lineup of EV models and is seeking to expand their offerings over the coming years. Their goal of expanding in both geographies served and available models will require a significant amount of capex.VinFast Company Presentation August 2023VinFast Company Presentation August 2023VinFast Company Presentation August 2023VinFast went public via a SPAC merger on August 14. Since then, the stock has rocketed up from the roughly $10 a share SPAC price to over $36. This puts their current market cap at over $85 billion, a value which is well above many of their EV startup peers as well as legacy auto. On the surface, this is an impressive feat for a startup competing in a highly competitive market. Unfortunately for investors, what's under the hood is ugly.Data by YChartsData by YChartsHouse of CardsMany investors are probably wondering why VinFast is valued so highly. In our opinion, the major reason is likely due to a low float. According to Forbes, \"Pham Nhat Vuong, chairman of VinFast’s parent company in Vietnam, controlled at a minimum 99.1% of the company’s shares before it merged with Black Spade. The company declined to say what exact percentage of shares outstanding are currently publicly traded\". On top of this, shareholders of Black Spade Acquisition redeemed over 80% of the shares in the SPAC vehicle before the merger took place. The end result of these factors is an insanely small float available for trade, and a stock that is highly volatile and easy to move.This would be fine if the company was an established business that could justify their valuation with fundamentals, however, this is not the case. In the quarter ended March 31, 2023 the company had revenue of just $83 million, gross margins of -193%, and a net loss of $597 million. The company is drowning in both hard debt (short and long term conventional debt) and soft debt (payables, etc). As of March 31 they had a book value of -$2.1 billion. On top of weak fundamentals and an unproven business, the company will likely need to dilute shareholders to fund capex.Income Statement (VinFast Form 20-F)Balance Sheet (VinFast Form 20-F)Balance Sheet (VinFast Form 20-F)On a PS basis, the company is currently trading at an eye watering multiple of over 256 (extrapolating their March quarter forward). The company will likely grow so this PS is overstated, however the main issue is that they are still wildly overvalued with poor financials and an impaired ability to spend money on capex and expand. Their PE and BV ratios are both negative. Their debt load far exceeds their available liquidity.Estimating a fair value for the company is difficult in this case. Given the company's challenged financials (specifically their high debt load relative to liquidity and negative book value) we don't view any price as being worth paying at this time. The operations have negative gross margins and the company has a negative book value, so both their operations and financial assets currently hold a negative value. In every respect, this remains a bottomless money pit until proven otherwise. We certainly don't think the company is worth nothing, however this is to say that the value of the company has a lot to do with the unavoidable dilution that is coming and how much money the company can raise rather than their current fundamentals.While VinFast may very well end up being a successful company, the current valuation is a house of cards that is not supported by the fundamentals. Dilution of some form is likely on the way as the company is already burdened with a large debt load relative to their asset base and would have difficulty securing additional debt financing.Of importance is the sheer amount of EV startups entering the ring. VinFast is one of many. If they are unable to both fund the necessary capex and produce high quality vehicles, the company will undoubtably see their valuation incinerated in due time. Even with flawless execution, it appears unlikely that VinFast can sustain their current valuation given the fundamentals at play as well as the competitiveness of the market they are in.RisksThe main risk to this bearish view on VinFast is the potential for them to raise large amounts of equity capital thanks to their elevated valuation, essentially becoming a self-fulfilling prophecy. This is certainly possible, and the company could get funding from Vingroup themselves. In such a scenario, we still believe that this dilution would cause the share price to decline, as the valuation is simply too extreme at these levels.Another risk to this bearish view is the potential for VinFast to produce cars that outcompete the alternatives and rapidly gain market share and notoriety. While this is possible, the sheer amount of competition in the auto market makes this a difficult proposition. This is especially true for an EV startup, of which there are many.We view the current risk/reward to be atrocious and wouldn't consider touching this stock until they fix their seriously damaged financials and the valuation falls substantially.Key TakeawayVinFast is a stock that investors should stay far away from. The company is unproven and their financials are abysmal. The market they are entering is exceedingly competitive. The company is vastly overvalued at these levels. Don't be lured in by short-term share price moves that are facilitated by a very low float.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":212573860475016,"gmtCreate":1692937755124,"gmtModify":1692937760788,"author":{"id":"4134355335802692","authorId":"4134355335802692","name":"MattK","avatar":"https://community-static.tradeup.com/news/86244e7277b2df0d3b8f9307f816d030","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4134355335802692","authorIdStr":"4134355335802692"},"htmlText":"Just crazy, still people buying into hype no matter the fundamentals. This will crash.","listText":"Just crazy, still people buying into hype no matter the fundamentals. This will crash.","text":"Just crazy, still people buying into hype no matter the fundamentals. This will crash.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212573860475016","repostId":2362399814,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":212563538854048,"gmtCreate":1692935333708,"gmtModify":1692935741750,"author":{"id":"4154476273298482","authorId":"4154476273298482","name":"Dongroco","avatar":"https://community-static.tradeup.com/news/3587cc50ea8169a523b297854aa1881f","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"4154476273298482","authorIdStr":"4154476273298482"},"htmlText":"It depends on what you are looking for","listText":"It depends on what you are looking for","text":"It depends on what you are looking for","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212563538854048","repostId":2362399814,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":212559955759224,"gmtCreate":1692934454515,"gmtModify":1692934459037,"author":{"id":"3557887424829909","authorId":"3557887424829909","name":"aaffsmcjje","avatar":"https://static.tigerbbs.com/0fcb01cf792998a6ce47337ae22c20b9","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3557887424829909","authorIdStr":"3557887424829909"},"htmlText":"Yeap. Just short it","listText":"Yeap. Just short it","text":"Yeap. Just short it","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/212559955759224","repostId":2362399814,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":13,"commentSize":3,"repostSize":3,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}