US deli with only $14,000 in sales has $100m value
A delicatessen that generated less than $14,000 in sales from a single site last year but which has a market capitalisation of more than $100 million has been highlighted by the head of a $1.6 billion hedge fund as an example of the lack of oversight of US markets.
Hometown International owns the Your Hometown Deli in Paulsboro, New Jersey, which was closed for six months last year due to Covid-19 restrictions but has only generated $35,748 in sales over the past two years of trading. Despite this, it had a market cap of $113m on February 8, David Einhorn of Greenlight Capital said in a letter to investors.
“The largest shareholder is also the chief executive, chief financial officer, 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,” said Mr Einhorn.
Hometown International was founded in 2014 and its deli opened in October 2015. The company ran up losses of $624,438 last year but increased its cash pile by issuing $2.5m worth of new shares. The share price has increased more than fourfold over the past 12 months, giving it a market value of $101.3m as of Friday.
A former lawyer, Greg Jaclin, who was barred after pleading guilty to shell company scams, was listed as an attorney in early company filings, CNBC reported yesterday.
“For the most part, quasi-anarchy appears to rule in markets,” said Mr Einhorn.
“Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of about a dozen bankrupt companies roughly doubled on enormous volume. Recently, The Wall Street Journal reported a boom in penny stocks.”
Small investors “who get sucked into these situations” are likely to be the ones that suffer the most harm from market manipulation, “yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious”, said Mr Einhorn.
“From a traditional perspective, the market is fractured and possibly in the process of breaking up completely.”
US stock markets have continued to hit new highs since the Federal Reserve and the US government began pumping trillions of dollars of fiscal stimulus into the economy since March last year.