In July last year, mad moneyJim Cramer tried to warn potential investors in the Chinese ride-sharing giant Global DiDi (NYSE:HAVE I GOT). Referring to Chinese initial public offerings (IPOs) in general and DIDI shares in particular, Cramer warned, “you must avoid them at all costs.”
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In the same order of ideas, DoubleLine Founder Jeffrey Gundlach recently said, “In my view, China cannot be invested in at this point. He added: “I think investments in China could be confiscated. I think there is a risk. »
Admittedly, the risk of confiscation argument does not necessarily apply to the DIDI stock. Anything is possible when it comes to Chinese investments.
As the Chinese government continues to crack down on several business sectors, it is becoming increasingly difficult to invest in them with confidence. And while Wall Street value hunters might dismiss Cramer and Gundlach’s warnings, informed investors should check the news and think twice before taking a position.
A closer look at the DIDI action
Is DIDI stock a delicacy for bottom fishers or a toxic asset? Let’s see how it fared on the New York Stock Exchange (NYSE), so far.
As you may recall, the IPO took place on June 30, 2021, and the stock began trading at $16.65 per share. There was a rapid rise to $18 at first, but this rally didn’t last long.
After a prolonged decline, DIDI stock fell to $5 and changed before the end of 2021. In mid-February 2022, the stock price was barely above $4.
$5 is sometimes considered a crucial technical level for stocks. Indeed, some traders informally define a penny stock as a security that trades at less than $5 per share.
Incidentally, DiDi’s 12-month earnings per share would be -$5.86. When this number is negative and its absolute value is higher than the stock price, it is probably not a good sign.
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It’s a disappointing end to a sad story. Could Cramer have been right all along?
As if DiDi’s US investors didn’t have enough to worry about, the company’s board of directors has approved the procedures required for a delisting from the NYSE.
This event was announced in December 2021. Current investors in the United States might wonder what will happen next. Apparently, DiDi plans to register on the Hong Kong Stock Exchange.
The company also reportedly intends to ensure that the US version of its shares can be exchanged for “freely tradable shares of the company on another internationally recognized stock exchange”.
How DiDi can ensure that is not entirely clear at this point. In any event, the company reportedly intends to file for listing in Hong Kong around March.
Another bad sign
As the company prepares to delist from the New York Stock Exchange, DiDi is also apparently shrinking, at least in terms of human capital.
At the end of 2020, DiDi was a thriving business with nearly 16,000 full-time employees. Fast forward to early 2022, and the company would have launched a company-wide layoff program.
DiDi’s plan, of course, is to reduce its total number of employees by up to 20%. The idea, as you might expect, is to reduce company expenses.
DiDi drivers, who are gig workers and not included in the company’s headcount, were said to be unaffected by the round of layoffs. So at least that’s good news.
Admittedly, the downsizing is not yet finalized and could still change. Still, DiDi’s full-time employees — and the company’s investors — probably shouldn’t get their hopes up.
The essential
Undoubtedly, DiDi’s ongoing problems fuel Cramer and Gundlach’s arguments.
However, you have to draw your own conclusions about the company and about Chinese investments in general. That being said, there’s no denying the cavalcade of bad news.
At this point, you can cut your losses if you currently hold DIDI shares. And if you’re considering going long now, it’s probably best to stay away.
As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
David Moadel has delivered compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He is also the Chief Analyst and Market Researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.