By Jonathan Weil
Nasdaq is known as the market's home for tech stocks, in particular giants like Nvidia, Apple and Microsoft. But, in another corner of the exchange, new penny-stock listings for tiny overseas companies with dubious financial prospects proliferate.
Last month's initial public offerings included a Cayman Islands-incorporated provider of shrimp-farm maintenance services in Malaysia with only four employees. The IPO by Megan Holdings priced at $4 a share and raised $5 million.
There has been a flood of similar microcap IPOs over the past two years, another sign of the speculative fever gripping many parts of the investing world. These stocks often lure everyday investors before they tumble. Some have produced remarkable gains following announcements related to a name change, cryptocurrencies or artificial intelligence.
Nasdaq has promised to clean up its act and on Sept. 3 asked the Securities and Exchange Commission for permission to tighten its listing standards, especially for small Chinese stocks. This followed criticism by investors and lawmakers that such listings had become breeding grounds for scams and manipulation. Final approval by the SEC could be months away.
While it waits, Nasdaq keeps greenlighting new listings that wouldn't meet its proposed new criteria. The head-scratcher is why Nasdaq ever allowed as many dodgy listings as it did. While each one means higher listing fees and trading volumes, the revenues at stake are small, compared with the potential for harm to investors and Nasdaq's own reputation.
A Nasdaq spokeswoman declined to comment.
Even in its request to tighten listing standards, Nasdaq isn't planning to raise its minimum IPO price. In general, the floor is $4. To many inexperienced individual investors, low-price stocks look "cheap." Promoters like low-price, thinly traded stocks because they are easier to hype and move up in price before the eventual dump.
Investors by now shouldn't need to be told that penny stocks may be hazardous to their financial health. Many are suckered anyway.
Among 2024 penny-stock IPOs for which one-year returns were available as of Sept. 30, share prices on average had a 37% one-year decline from the offer price, according to research by Jay Ritter, a University of Florida finance professor emeritus, who has tracked the IPO market since the late 1970s. For penny-stock IPOs from 2001 to 2023, the average three-year decline was 62%. (Ritter used shorter time periods for stocks less than three years old.)
Despite this dismal performance, the number of penny-stock IPOs -- commonly defined as those priced below $5 -- has soared. Since the start of 2024, there were 164 of them on U.S. exchanges through Sept. 30, including 147 on the Nasdaq. (The rest were on NYSE American, formerly known as the American Stock Exchange, which has listing standards for small stocks similar to Nasdaq's but less cachet.) That is more than the total from 2001-23 combined, when there were 106, according to Ritter.
"The market for these stocks is unsophisticated retail investors. There are no institutions buying these things." Ritter said. "It's pretty rare that any of them have long-lasting staying power."
Most of the penny-stock IPOs from this year and last year were by companies in China, including Hong Kong and Macau. One was QMMM Holdings, a Hong Kong digital-advertising company incorporated in the Cayman Islands. It lost $1.6 million on $2.7 million of revenue in fiscal 2024.
QMMM went public on Nasdaq at $4 in July 2024 in an $8.6 million offering, and it was trading below $4 for much of August. On Sept. 9, it announced a cryptocurrency strategy, and its shares gained more than 1,700% in one day.
They fell by almost half the next day. Yet the company still has a $6.8 billion stock-market value. The SEC on Sept. 29 suspended trading in QMMM shares through Oct. 10, citing "potential manipulation in the securities" through stock recommendations by "unknown persons via social media."
Another $4 IPO last year was by Junee, a Hong Kong interior-design company incorporated in the British Virgin Islands, which raised $8 million. It moved to Singapore, and in June changed its name to Super X AI Technology.
Now it has a $2 billion stock-market value, along with the attention of short sellers who have expressed skepticism about its artificial-intelligence chops. Its last financial report showed a $6.1 million loss on less than $1 million of revenue for the six months ended Dec. 31.
Write to Jonathan Weil at jonathan.weil@wsj.com
(END) Dow Jones Newswires
October 06, 2025 07:00 ET (11:00 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.