Company That Only Owns One Deli Somehow Valued At $100 Million In Stock

Updated September 8, 2021

Since the beginning of the year, you've likely heard about a lot of enthusiasm and tumult surrounding the enduring efforts of Reddit's r/wallstreetbets community to drive up the stock prices of long-shot companies like Gamestop and AMC.

Although the chaotic market push hasn't come without some positive results for people and animals alike, it's also served as the epicenter of a debate within financial communities as to what constitutes market manipulation.

However, massive stock fluctuations with dubious origins are hardly a new phenomenon in the stock market. As you may recall, the main character of The Wolf of Wall Street made a sizable fortune off of pressuring investors to buy stocks linked to murky and sometimes non-existent businesses.

But if that doesn't encourage us to exercise caution before investing in a stock we've never heard of no matter how good it appears, one hedge fund manager is clearly hoping that one bizarre story out of New Jersey will.

On the surface, a company by the name of Hometown International would seem like an incredibly successful business.

Reddit | graphicsvet

As CNBC reported, it reached a market capitalization of $113 million on February 8 with 2.5 million shares sold over the past year.

According to Bloomberg, this accounts for a 200% gain in just 2020 alone.

But as David Einhorn of Greenlight Capital found out, that company's holdings consist of Your Hometown Deli in Paulsboro, New Jersey.

Google Street View

And as Einhorn said in his firm's annual report to investors, we are talking about one single location which has its CEO/CFO/Treasurer and director as one of its largest shareholders.

Not only do all of these titles belong to the same person, but that person happens to be the wrestling coach of the high school next door.

As a tweet embedded by Bloomberg further outlined, about 77% of the company's shares are owned by firms based in Macau, China and Hong Kong.

As Einhorn said in his letter, "The pastrami must be amazing."

Facebook | Your Hometown Deli

But in case there's any doubt that there's more going on here than just a remarkably successful deli, Einhorn further mentioned that the deli's sales don't even remotely reflect this apparent financial growth.

In the report obtained by Bloomberg, the deli was found to have $21,772 in sales in 2019 and $13,976 in 2020.

As you might expect, part of that drop in sales in 2020 had to do with the fact that the deli had to close between March 23 and September 8 due to the emergence of the COVID-19 pandemic.

Facebook | Your Hometown Deli

But as CNBC reported, that period also saw the company's stock price rise to $9.23 per share from $3.25 per share. At last trade, that number increased to just below $14 per share.

That year also saw the company report $600,000 in expenses compared to $154,000 in 2019 as well as a net cash gain of $2.2 million that was attributed to "financing activities."

But while this all sounded suspicious to Einhorn, he identified it as just one example of a "fractured market" and a lack of oversight from U.S. financial market regulators.

Netflix via Reddit

He went on to express that the situation almost makes it seem like there aren't any financial fraud prosecutors, which gives players bold enough to commit market misconduct little reason to think they won't get away with it.

As he put it, "Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators — who are supposed to be protecting investors — appear to be neither present nor curious."

h/t: CNBC, Bloomberg

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