There are many lessons to be learned from the harrowing tale of Chinese ride-hailing giant DiDi Global < NYSE:DIDI>. Unfortunately, some investors won’t learn these lessons and will attempt an ill-fated rescue mission with DIDI stock.
Truly, there’s no better time than the present to abandon hope with this once-hailed company. The reality is, the Chinese government’s crackdowns on various private businesses won’t likely end anytime soon.
It pains me to admit this, Jim Cramer of Mad Money fame was 100% right when he tried to warn investors about DiDi Global. Referring to Chinese initial public offerings (IPOs) in general and DIDI stock in particular, Cramer declared that “you should steer clear of them at all cost.”
For traders who held their long positions, though, it’s too late to steer clear. The best they can do is to abandon ship and stick to less risk-prone investments from now on.
A Closer Look at DIDI Stock
Just to provide a quick recap, DIDI stock started off amid high hopes and multi-bagger dreams. The IPO took place on June 30, 2021, and the stock began trading at $16.65 per share.
The stock stayed close to the $15 area for a couple of days after the IPO, but then the buyers’ enthusiasm wore off. As it turned out, the share price declined relentlessly throughout the year.
Believe it or not, DIDI stock fell to $5 and change before the end of 2021. And here’s the real kicker for U.S.-based traders: soon, the shares won’t be available on the New York Stock Exchange (NYSE) at all.
This isn’t just a rumor. The company’s board of directors has already approved the required procedures for the NYSE delisting.
The “good” news, if there is any to be found here, is that American depositary shares (ADSs) “will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders.”
To be more specific, it’s been reported that DiDi plans to pursue a Hong Kong listing.
It’s also been suggested that this may be a “listing by introduction,” in which owners of the U.S. shares could transfer them to the Hong Kong exchange gradually.
Just in case the shareholders needed more turbulence in their lives, here’s another recent development.
Apparently, DiDi Global is undergoing a C-suite transition as Daniel Yong Zhang has resigned from the board of directors, while Yi Zhang has been appointed as a director to the board.
But wait, that’s not all. Ready for more weird, unsettling news?
It Only Gets Worse
Evidently, the company’s current and former employees are restricted from selling their DiDi shares for an indefinite amount of time.
Supposedly, the employees won’t be allowed to sell their shares until after the company has listed in Hong Kong – at which time, we might suppose, a massive surge of pent-up selling pressure could possibly ensue.
Finally, just to add insult to injury, we’ll review DiDi’s dreadful unaudited fiscal results for 2021’s third quarter.
It seems that China’s regulatory crackdown, along with the other ongoing issues, hit the company hard. A quarterly earnings loss of $4.7 billion only underscored the challenges of doing business in a nation that’s not always so business-friendly.
As a basis of comparison, DiDi had posted a $103 million net profit in the year-earlier quarter. Clearly, the company’s financial hole is only getting deeper, and harder to climb out of.
The Bottom Line
Admitting defeat in an investment isn’t necessarily easy. Yet, it’s important for informed traders to let go of toxic, low-conviction assets.
DiDi Global was once surrounded by IPO hype and fervor. With one unfortunate development after another, however, the bull thesis has faded away.
What’s worse: taking a steep loss on one’s investment, or admitting that Cramer was right? Either way, it’s time to move on and seek better, less disaster-prone opportunities elsewhere.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided 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 also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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DIDI shares were trading at $5.24 per share on Monday morning, up $0.26 (+5.22%). Year-to-date, DIDI has declined -62.94%, versus a 29.01% rise in the benchmark S&P 500 index during the same period.
About the Author: David Moadel
David Moadel has provided 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 also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. More...
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