EDITOR NOTE: Not quite Boiler Room, the 2000 film about a fly-by-night brokerage that pumped stocks of worthless companies, but what’s funny about today’s retail crowd is that you don’t need a boiler room to nudge them along. Nowadays, retail investors do it for themselves. Take for example the deli in the article below. The Your Hometown Deli made $35,000 in sales (not sure if that’s gross revenue or earnings) yet its stock valuation rose to $100 million. Some would argue that it's the Fed’s excessive money printing plus the government’s fiscal spending that gave investors the cash for excess speculation. Perhaps it’s just an inclination for risk-taking that characterizes today’s retail herd. Every American has the right to take risks. Not all of those risks are going to be smart. But for those who choose to risk a blow-up, it does create opportunities for smart money to exploit--whether through hedging with safe-haven assets like gold and silver or for swooping in on sound investments when the markets crash.
Hedge fund manager David Einhorn warned of dangers for retail investors that he sees in the market, and one of his main examples was a tiny New Jersey deli with a market capitalization of more than $100 million.
The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown International, which has an eye-popping market value despite totaling $35,748 in sales in the last two years combined, according to securities filings.
“Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey ... HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing,” Einhorn said in a letter to clients published Thursday.
Hometown, which appears to have begun trading in 2019, according to FactSet, has shares that trade over the counter and rarely has more than a few hundred shares change hands per day. Often, there are no trades logged in an entire trading day.
Still, the company’s market cap is just over $100 million, according to FactSet.
Hometown did not immediately return a request seeking comment made to the phone number listed in the company’s securities filings. A manager was not available to comment at the deli’s phone number.
According to the company’s latest 10-K filing, the company’s single location was closed from March 23 to September 8 of last year because of the coronavirus pandemic. During that time, the company’s stock price rose to $9.25 per share from $3.25 per share. It last traded at just under $14 per share.
The company sold 2.5 million shares last year and has about 60 total shareholders, according a filing.
Hometown reported more than $600,000 in expenses last year, up from about $154,000 in 2019. The company also reported a net cash gain of $2.2 million from financing activities, such as selling stock, in 2020.
As a new wave of retail investors joined the market in recent months, special purpose acquisition companies have launched at a record pace and some stocks, like GameStop and Discovery, have seen wild swings after being bid up by traders on Reddit or hedge funds.
The over-the-counter stock market, often referred to as pink sheets and penny stocks, have historically been a risky place for investors. Shares of penny stocks have also soared in recent months.
Original post from CNBC