(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
You know something is broken when the CEO of a company promises to spend over $1M of her own money and the stock still falls over 20%. This is the current problem with China DangDang, Inc (DANG), a Chinese e-commerce company. On June 20, co-founder Peggy Yu Yu, appeared on CNBC’s strategy session to talk about the virtues of DANG. She explained why she and her family plan to buy back $2M of company stock over the next six months:
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I believe this is the first time I have ever heard a CEO include concern for the value of employee stock options as a reason for buying stock. The sentiment worked as DANG rose sharply throughout the interview.
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Source: Yahoo! Finance
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Below, Yu Yu explains DANG’s business in late 2009 and includes details on the unique delivery system of couriers that use cash on delivery (“human ATMs”) in lieu of credit cards:
DANG is of course not alone in its massive losses in June. Several Chinese internet-related companies have lost over 40% in this month and are sharply down for the year and/or post-IPO. There is a general run on the exits in these stocks…
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Given the extent of the current sell-off, these Chinese internet stocks make the perfect boom or bust plays. If the current issues are overblown, these are stocks that could quickly double at some point this year or next. If not, they could be ever closer to zero by year-end. Buying shares and puts is a low risk, high reward way to play beaten up speculative stocks like DANG.
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long DANG shares and puts