When investing in a company, you might want to think about something that’s built to last. Something that provides a service everyone needs.
And while everyone does need to let loose in a while, Hong Kong Nightlife company Magnum Holdings — which owns popular club Magnum — provides us with a lesson on why you probably shouldn’t buy stock in a club. Especially a nightclub that has rhinestone encrusted toilets in the stalls.
The company went public in January to much fanfare. It touted the fact that revelers file into lines stretching down the street to get inside and that its signature drink is the Jagerbomb.
Investors, apparently, love Jagerbombs and glitzy toilets too — especially retail investors, who represented $US5.7 billion of the total $US16 billion IPO.
Unfortunately on Tuesday the club issued a statement saying that it expected to take a serious hit in terms of profits for the first 11 months up to February 28th, 2014. On that news, Magnum stock is down 19.74%.
As the WSJ points out, investors should have been aware that there was risk. In between the disco light, techno beats and bombs bombs bombs, Magnum said in its prospectus that it was quite possible that the club could, frankly, cease to be cool.
“The Group’s future success depends in part on its ability to anticipate and respond to the changes in consumer preferences and tastes and other factors that affect the clubbing industry. […] It cannot assure you that its offerings will continue to suit the popular tastes and demands of consumers,” Magnum said in its listing prospectus.