Summary of the Key Points
Zhonggong Education became a trending topic across the internet due to a humorous joke, and its popularity was amplified by Douyin's algorithm and the popularity rankings on stock trading apps. This led to retail investors flooding in, causing the company's stock price to hit the daily limit up. Behind this phenomenon lies a "chain of information distortion": creating memes with false concepts, using popularity rankings to distract from the actual value of the company, media outlets providing "fundamental reasons" afterwards, and AI generating fake financial report data. This incident exposes three major contradictions in the market: the ineffectiveness of warnings from companies/exchanges, the misconception that low prices equal cheapness, and the loss of control over one's own stock price narrative by listed companies. Essentially, it's a game driven by emotions and based on the notion of "gaming the fools."
The Process of a Joke Turning into a Stock Price Limit Up
This process is like turning "garbage" into "gold":
1. Memes with Tags: Facts don't matter; puns are the key to attracting attention. In the joke, certain terms were misinterpreted by retail investors, leading them to associate Zhonggong Education with "color-related concept stocks" or "PCB concept stocks," even though the company is in the education sector. But as long as the tag is catchy, who cares about the truth?
2. Popularity Rankings as a Mask: The popularity rankings on apps like Tonghuashun are based on click and search volumes, which have nothing to do with the quality of the company. When these rankings are mixed with those for "hot stocks," retail investors can't distinguish between high search volume and high buying activity. For example, a stock with 1.08 million views might seem extremely popular.
3. Media Providing Reasons: Only after the price limit up do media outlets offer "reasonable" explanations, such as the "15th Five-Year Education Plan" or the summer exam season. However, these reasons come after the fact and are merely used to give a semblance of logical investment justifications.
4. AI-Generated Fake Data: Someone used AI to create fake financial reports showing Zhonggong's revenue for the third quarter of 2025 at 6.08 billion yuan (when the actual annual revenue was only 2.237 billion yuan). The format matched the real reports, making it difficult for ordinary investors to spot the deception.
Why Do Facts Fail to Stop the Trend?
The human brain prefers stories that seem self-explanatory and avoids complex logic. For example, the idea that "grandparents who smoke live to 90 mean smoking is harmless" is often accepted as truth, even though it's just an anecdote. In Zhonggong's case, the claim of a 20-fold increase in revenue within a year resonated with retail investors' desire for quick returns, making the story more compelling than the actual facts.
Is a 2-Yuan Stock Really Cheap?
Many think a 2-yuan stock is a safe bet, but this is a major misconception:
- High Price-Earnings Ratio (PE): Zhonggong's annual net profit is less than 50 million yuan, while its market value is 12.9 billion yuan, meaning it would take over 200 years to recoup the investment based on profits alone (compared to PE ratios of just a few times for "blue-chip" stocks).
- High Price-to-Book Ratio (PB): The company's book value (net assets) is only about 13% of its market value. A 2-yuan stock actually represents less than 10% of its true worth. Low prices are just numerical; being cheap means the price is below its intrinsic value.
Previous instances where Zhonggong's stock price limit up only to fall back later showed that there was no real underlying value supporting it, and this time will be no different.
Can Companies Compete with Cost-Free Memes?
A-share companies spend millions on investor relations (IR) efforts to present a positive image, but in Zhonggong's case, it shows that the power to control information no longer lies with them. Algorithms and social media platforms dominate the narrative, and investors focus on memes and stock app rankings rather than official announcements. As a result, companies lose control over how their stock prices are perceived.
Who Is Making Money?
The large institutional investors in the market don't believe the ridiculous claims about 20-fold returns; they're betting on more retail investors entering the market due to the hype. Retail investors think they're participating in a frenzy but are actually just playing the role of "bidders" for these inflated prices. Those who enter early sell their shares when the trend peaks, leaving later investors stuck with losses. This is a classic example of "gaming the fools."
Three Tips for Ordinary Investors
1. Check Official Announcements: Company and exchange announcements are always more reliable than memes.
2. Be Cautious of Popularity: When everyone is talking about a stock, the information may have been distorted; don't follow the crowd.
3. Verify Information Sources: Always question the origin of any news, especially fake data generated by AI or rumors.
In conclusion, while there might not be "thieves" in the A-share market, you can choose not to be the one who gets deceived.