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Cornerstone IPO: Selling Shares At 400x EPS

Dec. 07, 2018 6:57 AM ETCornerstone Management (CSCA)
Wilsonville Capital profile picture
Wilsonville Capital


  • Cornerstone Management is a private equity fund manager in China investing in China-based companies interested in being listed in the United States.
  • The company was incorporated in the British Islands, wherein the securities laws provide less shareholder protection as compared to the United States.
  • Cornerstone is selling shares at 25x its net asset per share, which cannot be justified as its gross profit margins are not that good.
  • The float is expected to be low. As a result, analysts should be expecting share price volatility. The company could deliver large stock returns or trading losses in a very short period of time.
  • The amount of institutional investors is very low.

Selling shares at 400x EPS and 23.52x forward sales, Cornerstone Management (CSCA) seems massively overvalued. The company’s revenue growth of 98% y/y and its solid balance sheet are fine, but the market capitalization seems completely unjustified. Keeping this in mind, the market capitalization equals $613 million, which is more than its assets under management, equal to $548.5 million. In addition, the fact that the company was incorporated in the British Virgin Islands is another risk to be taken into account. As a result, the shareholders are less protected than in the United States.

Source: Prospectus

Business And Due Diligence

Founded in 2015 and incorporated in the British Virgin Islands, Cornerstone is a private equity fund manager in China investing in China-based companies interested in being listed in the United States.

Source: Company’s Website

The image below provides further details regarding the business structure. Note that shareholders own shares of a company incorporated in the British Virgin Islands, which is the owner of another entity located in Hong Kong owning assets in China.

Source: Prospectus

It seems very relevant noting when these entities were created. According to the prospectus, most of them were created in 2017 or 2015. Read the following lines for further details on this matter:

Source: Prospectus

With that, according to the company’s website, the company “insisted” on bank investment and fund management in the last twenty years. The image below was taken from the website:

Source: Company’s Website

Cornerstone runs different funds. Some of them seemed to return fantastic performance in 2017 and 2018. East Value, for instance, reported net internal return of 39.9%. Other funds have reported less appealing performance. Unicorn, for instance, reported a net internal return of 21.1% in 2018. The image below provides further details on this matter:

Source: Prospectus

Regarding the assets

This article was written by

Wilsonville Capital profile picture
Ex Analyst in a big institution.I am a growth investor. Returns: https://www.tipranks.com/bloggers/wilsonville-capital

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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