This Tiny NJ Deli Has a $110 Million Market Cap – How Do Stocks Get So Inflated?
Wall Street has seen its share of struggling companies enjoying soaring stock prices this year, thanks to forces that have nothing to do with financial performance. One of the most extreme cases was spotlighted on Thursday, when reports surfaced that a little deli in rural New Jersey has somehow managed to push its market cap above $100 million despite having less than $14,000 in sales last year.
The deli is Your Hometown Deli of Paulsboro, N.J., which is the sole location of parent company Hometown International, an over-the-counter stock that trades under the symbol HWIN.
Citing data from FactSet, CNBC reported on Thursday that Hometown International’s market cap pushed above $100 million this week — despite the fact that the company’s combined sales over the last two years are less than $36,000.
In 2020, Hometown International rang up less than $14,000 in sales, according to Bloomberg, as the COVID-19 pandemic forced the deli to close for much of the year. Meanwhile, expenses for the year were about $600,000, according to securities filings.
Word of Hometown International’s market cap spread after renowned hedge fund manager David Einhorn highlighted the stock in a letter to investors at Greenlight Capital. In that letter, Einhorn noted that the stock reached a market cap of $113 million, and that its share price has roughly tripled over the past year. His comments were part of a larger discussion about the dangers retail investors face in the current market.
Hometown International is not the only stock to see its value soar against all financial logic. Earlier this year, larger but still struggling businesses such as GameStop and AMC Entertainment Holdings saw their stock prices skyrocket because of a short squeeze initiated by a group of investors on Reddit, as The Motley Fool financial website reported.
These types of companies are being referred to as “meme stocks,” meaning that they gain popularity online rather than through fundamental financial performances.
In February, Forbes detailed ways that some stocks are being manipulated by investors who want to run up share prices and then sell them for profits. This typically involves quietly accumulating shares to avoid notice, helping to inflate the stock price through more aggressive buying, spreading the word about the rising stock price on social media, and then selling while the stock is still on the rise.
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