Sunday, December 6, 2020

Dragon Victory International Limited [LYL] a Profitable Hold as China Rebounds

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Dragon Victory International Limited [NASDAQ:LYL] has been gaining quite strongly over the past month and does not seem to be slowing down. In yesterday’s trading session, the stock rallied and closed the day with gains of 47%. 

The recent gains have been driven by earlier news that the company had meet the NASDAQ listing requirements after earlier warning over the same. Back in June, the company announced that it had been notified by the NASDAQ that it had regained compliance to the NASDAQ Listing Rule 5550(a) (2) with regards to minimum bid price. Since then the stock price has been on the rise an indicator that investors have faith in the stock and the company’s underlying fundamentals.


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Besides its continued listing on the NASDAQ, the company’s increased momentum has a lot to do with the resilience of the Chinese economy. Recent economic data shows that the Chinese economy grew by 4.9% in Q4. This is quite strong given the manner in which the COVID-19 pandemic has ravaged the world economy.  For companies that make most of their money in China, this is a big deal and could see them keep gaining upside momentum in the short-term. 

Dragon Victory is one such company. It is a China-focused company with its headquarters in Hangzhou, China.  The company’s core business is the provision of reward-based crowdfunding services to Chinese entrepreneurs. It provides funding services through its reward-based crowdfunding platform. Through a platform called Setou, the company help SMEs and startups come up with ideas and generate funding online.

On top of that, the company gives quality business incubation services to established businesses and startups that need to use crowdfunding as their primary means of raising capital. All these businesses that the company runs are heavily reliant on the performance of the Chinese economy.

When the economy is doing well, SMEs demand for expansion capital also grows. Similarly, the desire by entrepreneurs to come up with new companies aimed at solving various issues in different markets. In essence, the increased upside of the Chinese economy post pandemic is likely to see this stock gain in value as entrepreneurs envisage long-term profitability.  

There is also increased hope that a vaccine could be found soon. Multiple countries are working towards a vaccine. This further adds more optimism for a full economy recovery, and the return to pre-pandemic corporate profitability. For this reason, this stock has the potential to enter a more long-term bull trend from the current rally. 

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