Newegg Stock Is Risky Due to Heightened Chinese Regulatory Activity

Among e-commerce stocks, one name a lot of Reddit loved last year is Newegg Commerce (NASDAQ:NEGG), owned by a Chinese firm, Liaison Interactive. The company is a California-based online retailer selling computer hardware and consumer electronics. However, NEGG stock is down almost 65% in the year thus far, and with crypto prices struggling, it will not make a comeback unless Reddit intervenes spectacularly.

When NEGG stock was a meme, the share prices shot up to $79. Despite this, concerns about the sustainability of the high price remained, and now, after a year of struggling, it is finally undergoing a price correction. Reddit’s user base played a major part in its stock price hike but sustaining that growth was impossible.

Another reason for the sharp dip in interest in the current state of the crypto markets. With the growing popularity of blockchain-based currencies, the demand for graphic cards will continue to increase in future years. Newegg offers a diverse range of graphics cards suitable for mining purposes, making them a popular choice. But due to the prevailing situation in the crypto space, it has come under pressure.

Not a good sign considering Newegg’s lack of data, but the lingering sentiment is that Chinese stocks are improving, so you would want to keep your eye on that.

Ignore Risk at Your Peril

A bullish case has been made on the e-commerce segment for Newegg; it even cited an increase in sales from 2019 to 2020. Online retail was one of the prevalent growth stories during Covid-19, and consumers shifted towards it.

However, as time passes and we return to our personal lives, e-commerce companies that survive will have the strongest customer service and resources. NEGG, much like other e-commerce companies, did very well during the pandemic. But if it wants to maintain investor interest, it will need to keep performing on both the bottom and top lines.

Newegg experienced a decline in sales for 2018 and 2019, and the 2020 numbers were not very impressive either. Management does not provide significant financial commentary. Therefore, assessing growth and sales patterns is difficult. The lack of financial data can prove telling since NEGG is subject to Chinese regulatory pressure. Accurate data, therefore, becomes vital.

Although Chinese stock markets have delivered huge returns in the past, the heightened risk of regulatory changes in Beijing has made investing more difficult over the last year. There are also concerns that Chinese stocks could be delisted if they fail to fulfill U.S. audit regulations.

Many U.S.-listed Chinese companies have applied or are actively applying for a secondary listing to circumvent potential issues. Nevertheless, these developments are an additional risk when investing in NEGG stock.

What Is the Bull Case for NEGG Stock?

Newegg is a U.S. company, and as the computer hardware market in the country is huge and continues to grow, so does its global reach. They offer products for both home and business use that are popular with someone looking to make a big profit on crypto mining on the side.

Newegg helps IT companies thrive when it comes to hardware. The online retailer is limiting itself by not selling internationally. It should expand beyond the U.S. to gain more revenue and maintain strong growth.

The online retailer has a history of supporting the e-gaming industry through different ventures. It also has a subsidiary Advanced Battlestations (ABS), which manufactures gaming computers. The segment was rebooted by Newegg, considering the growing demand for their products among gamers. With a global audience, gaming is one of the fastest-growing industries that you can find in many countries. It is a genuine reason for the

Newegg has posted net incomes in the last two fiscal years after booking losses in the previous years. Revenues from the company have also gone up in the last few years. Consolidating business operations across the globe is important to maximize market opportunities and increase revenue. Reaching more consumers means a higher turnover, which are all factors that the company is working on.

The Bottom Line

Many risks come with owning any Chinese stock. And just because the American government may be unable to delist them for some time doesn’t mean you should ignore the potential possibilities. Hence, many people seem to be pessimistic about Chinese stocks at this point. I’m not too confident in Newegg’s stock price replicating its meme-induced gains.

In addition, the cryptocurrency world is going through a rough patch right now as the price of Bitcoin (BTC-USD), Ethereum (ETH-USD), and other cryptos drop. Investors are losing interest in an asset they believe has lost value and flock to safer investments.

The demand for mining equipment has drastically declined since the price of crypto assets has changed for the worse. This is because miners can no longer make as much money from their work as they were when crypto prices were on the rise. It is an additional issue dragging down NEGG and its stock price.

Considering all the pros and cons, it does not appear that investing in NEGG is a good idea.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.