The stock market is a crazy place indeed

If I close my eyes and chillax for a couple of seconds, I can bring forth the divine smell of Maury's Delicatessen in Worcester's Webster Square. 

Sundays growing up meant Mass in the morning, my father buying the Boston papers from the newsstand my cousin Jimmy ran in front of our church, a trip to Dunkin Donuts, and a stop in at Maury's Delicatessen.

We always had a big mid-day Sunday dinner: roast something or other meaty, mashed potatoes, a couple of different veggies. But Sunday evening meant sandwiches made from the cold cuts and French bread we'd picked up at Maury's earlier in the day. (It was also the one night in the week when we ate in front of the TV, watching College Bowl and Rocky & Bullwinkle.)

There's still a Maury's in Webster Square, but this one's in a new location - an ugly modern building, unlike the cool stone building our Maury's was in. And I'm pretty sure that Maury and wife are long gone. Wonder if the business is still in the family, or whether they sold it. And wonder, if they sold it, just what it was worth.

Probably a lot less than Your Hometown Deli of Paulsboro, NJ. Despite revenues of about eighty bucks a day, Your Hometown Deli went public a few years ago. It's market cap is now $100 million. (The New Yorker, where I first read about Hometown places the value at $2 billion, but I'm going with what the financial press is reporting, even if their estimates are also somewhat flaky.)

There is no way that a dinky NJ deli, founded by a high school principal who also moonlight's as the school's wrestling coach, and which has annual revenues of less than $40K is worth a million bucks (unless the property it's sitting on is owned by the operator and is in prime development territory), let alone $100 million (let alone $2 billion).

NPR's Jacob Goldstein got wind of the story and did a bit of asking around. 

Why would a little deli in New Jersey need to be traded on the stock market at all? I asked Aswath Damodaran, a finance professor at New York University. And he pointed to another detail in the company's public filings. Many of the largest shareholders are based not in New Jersey, but in China. And he said one thing to note about many companies in China...

ASWATH DAMODARAN: The Chinese value a U.S. corporate structure.

GOLDSTEIN: Many companies in China want to be traded on the U.S. stock market. But it can be hard for those companies to go public the traditional way in the U.S. So the deli, Hometown International Inc., could provide a side door for a foreign company that wants to join the U.S. stock market. A foreign company could just merge with Hometown and avoid the scrutiny of a normal public offering.

DAMODARAN: So what it then creates is a structure you can use to bring almost any business in any other part of the world into a U.S. publicly traded company. (Source: NPR)

What with the New Jersey connection, I was thinking the Hometown was some sort of Soprano-like Satriale's Pork. Or the Bada-Bing. But this explanation makes sense.

CNBC also went after the story, which started gaining attention when a legit hedge fund manager noted in his newsletter that there was a weird little deli stock floating around in the OTC markets. (CNBC found all sorts of interesting, suspicious, mysterious things. They even went to Macao!  The article is definitely worth the read.)

With all the attention focused on Hometown International, business (in terms of selling hoagies) was probably up. But in terms of their stock:

Hometown International has seen had its stock demoted from a midtier over-the-counter trading platform because of irregularities in its public disclosures. OTC Markets Group at the same time slapped a “buyer beware” warning on Hometown International’s stock.

...Last Friday, Hometown International, in an extraordinary SEC filing, disavowed its market capitalization, saying that neither its revenues nor assets warranted such a high stock price. (Source: CNBC)

The New Yorker, meanwhile,  arranged for "a private valuation." They bought a few hoagies to the manager of Benvenutis, another Italian food shop, up the New Jersey Turnpike a bit. 

Ron Ferreira judged the sandwiches to be Wawa*-level quality—pretty good. But there were red flags. “Those pickles are cheap pickles, first of all,” he said. “If you’re a deli, get a fuckin’ pickle guy.”

There were also "supply-chain issues" that Ferreira commented on. (The New Yorker's visit to Hometown had found that the store was out of chicken - i.e., no chicken parm! - and that the roast beef wasn't cooked yet.)

“For them not to have chicken on a weekend? I don’t know, it doesn’t equate,” he said. “And they’re cooking the roast beef, and it’ll be ready tomorrow?” He went on, “It doesn’t sound kosher to me.” Asked for a target valuation for investors, Ferreira did some mental calculation and declared, “You’ve gotta look at the numbers. But it could be a fifty-thousand-dollar business.” (Source: The New Yorker)

Fifty-thousand? $100 million? $2 billion?

The stock market sure can be a crazy place, no?

Meanwhile, on my next trip to Worcester, I'm thinking of stopping in at Maury's for an Italian grinder. Wonder if it still smells as wonderful as it did when I was a kid?

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*Wawa's is a convenience store chain in the mid-Atlantic states.