On its second day of trading, Focus Universal (NASDAQ:FCUV) shares reached as high as $19.28. The company announced on 30 August that its stock will commence trading on the NASDAQ Capital Markets under the ticker “FCUV”. Under this public offering, the company issued 2,000,000 common shares at a price of $5.00 per share. The goal was to raise around $10m. And given the surge in share price, I think it’s fair to say that the equity issue was a success. So should I be adding this business to my portfolio? Let’s take a look.

Background of Focus Universal Inc.

The company was founded in 2012, and its business model is what caught my attention. Focus Universal develops hardware and software technologies aimed at the Internet of Things (IoT) and 5G industry. Both of these sectors are currently in high growth mode, driven by strong secular growth catalysts.

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Focus Universal has developed four proprietary technologies over the years. These technologies solve fundamental problems of IoT and 5G industry through the following ways:

1. Increasing overall chip integration by shifting it to the device level.
2. Creating a faster 5G cellular technology by using ultra-narrowband technology.
3. Leveraging ultra-narrowband power line communication (“PLC”) technology.
4. User Interface Machine auto-generation technology.

In other words, it makes things faster, cheaper, and more readily available. But beyond these flagship technologies, the firm also sells a wide range of other products, including fan speed adjusters, carbon filters, HEPA filtration devices and Quantum Par Meter Devices. 

Focus Universal hopes to expand and grow through mergers & acquisitions, original equipment manufacturer (” OEM”) engineering consulting and software licensing. Needless to say, the firm is hardly a one-trick pony. And with the capital it just raised, it seems to me that Focus Universal is in a prime position to continue expanding its revenue stream. And that certainly makes them look attractive in my eyes.

Why Focus Universal shares soared 278% 

On its second day of trading, Focus Universal shares soared over 300% before closing the day with a 278% increase. But what caused such a sudden jump after the share issue trading day?

On its debut at the NASDAQ Capital Market, there has been intense interest from retail investors. This could be seen in the fact that the stock was among the top trending tickers on the StockTwits platform and various social media. In retrospect, it seems the issue price of $5 per share was also relatively low, making this IoT 5G investment opportunity appear pretty cheap. But as is the case with many trending stocks, the valuation has reached pretty absurd levels.

Risks that Lies Ahead

Focus Universal is in a very competitive business. Although the 5G and IoT sectors have several growth potentials, the industry is getting crowded, hence the competition. Many of the competitors are more capitalised than Focus Universal. Without more funding, the company’s growth may be limited. This could limit Focus Universal’s share price future growth. 

But what I find more concerning is the valuation. Focus Universal generated $1.68m in revenue last year. By comparison, the latest boost in share price has pushed its market capitalisation to over $635m. That’s a clear indicator to me that the price is utterly devoid of the fundamentals. And suppose the company cannot deliver on such high expectations from retail investors. In that case, Focus Universal shares will likely come crashing down.

Concluding Thoughts

While Focus Universal’s shares continue to attract attention, I believe the price will continue to climb. But only time whether Focus Universal can deliver on expectations and whether the surge will be retained. Personally, I think the risks are too high. So, as promising as this business is, I’m keeping it on my watchlist for now.