Retail investors test EcoPro’s upside as Korea’s GameStop

Shares of EcoPro Co., a South Korean battery materials maker, have skyrocketed this year, rising 848% year to date to break above the 1 million won ($772) mark on Monday.

The usual suspect behind the cathode maker’s rally was the global takeoff of electric vehicles and growing demand for batteries amid a paradigm shift toward eco-friendly cars.

Some market pundits, however, say that it was caused by individual investors’ move to defy short sellers – just like their US peers who acted against hedge funds in the surge of GameStop Corp.'s shares in 2021.

Back then, GameStop, a US video-game retailer, was on a stupefying 1,600% run over just three weeks after it emerged at the center of a stock market showdown – swarms of smaller investors amassed its shares in defiance of hedge funds who shorted them. 

Stock analysts and fund managers likened EcoPro’s surge to GameStop, as the sharp share price hike has been led by Korean retail investors, often referred to as the Ants, given their relatively small influence on the equities market versus large funds.

“A foreign asset management firm formed an ad hoc team to massively short EcoPro. The company suffered a huge loss as a result. Not a few hedge funds had to cover their short positions before their losses snowballed,” said a Korean asset manager.

MEME STOCK

On Tuesday, shares of EcoPro, listed on the junior Kosdaq market, closed up 1.1% at 976,000 won.

The previous day, the stock rose to a high of 1.02 million won, becoming the fifth company to rise above 1 million won on the Kosdaq. Until this, Dongil Steel Co. had been the last to do so, with its stock reaching 1.1 million won in September 2007.

EcoPro, the world’s largest cathode manufacturer, is the holding company of EcoPro Group, which has affiliates such as EcoPro BM Co., EcoPro Innovation Co. and EcoPro AP Co.

Driven by explosive demand growth for rechargeable batteries, EcoPro’s share price has risen ninefold so far this year.

It has been one of the most coveted shares in Korea during this period, with individuals buying a net 1.72 trillion won of the stock. By contrast, foreigners and institutional investors have sold 936.5 billion won and 762.8 billion won, respectively, worth of EcoPro shares.

Arguably, EcoPro is Korea’s hottest meme stock – one that has gained viral popularity due to heightened social sentiment, particularly on social media platforms.

A buying spree by retail investors began in February when pundits, including a Kumyang Co. executive nicknamed Mr. Battery Man, pointed to EcoPro and EcoPro BM as the top beneficiaries of the EV battery boom.

Retail investors scooped up EcoPro shares even as brokerages such as Goldman Sachs and Hana Securities issued warnings that the stock was overshooting.

“EcoPro’s market capitalization exceeded the company’s expected value in five years,” said Hana Securities in a research note at the time, slashing the cathode maker’s target price to 455,000 won.

After a brief correction, however, the stock resumed its rally near the end of June, this time buoyed by Tesla Inc.’s surprise announcement that its second-quarter EV shipments rose 83% on year to 470,000 units.

On the back of the Tesla news, EcoPro soared 20.4% to 908,000 won on July 3.

SHORT SQUEEZE

Industry watchers said EcoPro’s strong performance was partly due to a short squeeze – a market phenomenon in which an unexpected rise in the price of heavily shorted stock prompts large numbers of short-sellers to exit their positions by buying the stock.

The short-selling balance of EcoPro stood at 54 billion won at the beginning of this year but it surged 23-fold to 1.25 trillion won as of July 6, which means many investors, largely institutions and hedge funds, bet on the stock’s fall.

Given the growing popularity of electric cars and EcoPro’s business expansion, many retail investors are betting on a further rise in the company’s share price.

The company’s operating profit rose sevenfold to 613.2 billion won last year from 86 billion won in 2021.

Analysts warn against follow-up buying from the current share price level.

EcoPro’s price-to-earnings ratio (PER) is 700, much higher than industry peers such as POSCO Future M Co.’s multiple of 267, LG Energy Solution Ltd.’s 166 and L&F Co.’s 31.

INEXPLICABLE

“The stock’s price is already at a level that cannot be explained theoretically,” said the head of research at a local brokerage firm. “Many brokerage firms gave up on EcoPro’s stock analysis after watching analysts with Sell recommendations become a target of attacks on YouTube and other online platforms.”

Analysts said the push by the alliance of smaller investors is reminiscent of OCI Co., a leading Korean chemical and green energy company, the shares of which soared and then plummeted.

“It is not uncommon to see many retail investors who engaged in a buying frenzy of meme stocks suffer huge losses later,” said a local asset management firm executive.

Previously, biotech plays such as Celltrion Inc. were targets of short-selling. Those stocks were heavily shorted by foreign investors and institutions on the local bourse, often leading to a sharp fall in their stock prices and resulting in losses for smaller investors who hold them. 

Write to Man-Su Choe at bebop@hankyung.com

In-Soo Nam edited this article.