The meme traders have done it again. Notorious for driving up companies who on the charts appear doomed to destruction, the lucky recipient of the social media plug recently is Farmmi (NASDAQ:FAMI) stock, a China-based agricultural products processor and distributor.
FAMI stock dropping to 21 cents a share on Sept. 24 was enough to inspire bullish activity, apparently.
As you probably figured, the catalyst for this fresh meme came from speculation about another short-squeeze candidate.
A quick recap: short traders profit from downturns in their target stock as they profit from the difference between its distribution price and post-sales acquisition price. However, if the target stock’s price rises instead of falls, short traders end up pocketing a contractual deficit.
That’s exactly what happened recently with FAMI stock.
“Reddit investors last week began taking notice of FAMI after it posted several days of losses following an $81 million public offering,” according to our own Brenden Rearick. “With share dilution making the price of FAMI pennies on the dollar, it had a very low buy-in. Last Friday, the saga got much more interesting, with short interest increasing nearly sixfold.”
On the final day of September, FAMI stock closed at 46 cents. But one day later, shares dropped to 35 cents, a nearly 24% loss. It trades at around 32 cents today. Therefore, speculators are wondering if this meme still has legs or if the limited attention span of the social media crowd has gone onto other stocks.
In my view, FAMI stock is best left to extreme gamblers or for pure entertainment purposes with money you have already assumed you’ll lose. Farmmi’s market capitalization is a hair under $100 million, and again, we’re talking about a literal penny stock here.
You’ve been warned. But to be fair, an enticing narrative exists.
FAMI Stock Is a Possibly Palatable Risk
My somewhat positive overture toward FAMI stock is not an attempt to deliberately avoid getting shiitakes in my inbox if you know what I mean, though I must admit it’s a tangible benefit. But no, Farmmi does offer an intriguing storyline that could turn out to be lucrative.
As Rearick noted, “Farmmi is a farming company based in Lishui, China. The company specializes in the cultivation of fungi, including products like shiitake and wood ear mushrooms.”
Long a staple of Asian cuisine and Asian markets serving the region’s diaspora, I was surprised to learn that more western countries are clamoring for this food product.
InvestorPlace contributor David Moadel, who took a contrarian approach with FAMI stock by supporting its speculative bullish thesis, stated that multiple countries have placed orders from Farmii, including Israel, the U.S., Canada, Lebanon and various Southwest Asian countries.
That’s a lot of shiitake and other Asia-origin mushrooms going around the world — and there’s no evidence to suggest that this is a mere passing fad.
Analysis from Data Bridge Market Research forecasts that the shiitake mushroom market will expand at a compound annual growth rate (CAGR) of 5.7% between 2021 and 2028, culminating in a valuation of nearly $186 million by the end of the forecasted period.
Other sources such as ResearchAndMarkets.com suggest that the CAGR between 2020 and 2025 could be as high as 9.11%.
What’s important to realize is that this bullishness for eastern mushrooms coincides with a greater focus — especially among millennials — on healthier eating. Now, I’ve presented conflicting evidence in the past, such as young people being too overweight for military service.
Believing in the Power of Shiitake
By now, you’ve probably learned all you wanted to know about shiitake mushrooms. How about some more?
As a staple of traditional Chinese medicine, “shiitake are thought to boost health and longevity, as well as improve circulation.” In addition, studies “suggest that some of the bioactive compounds in shiitake may protect against cancer and inflammation.”
Considering that the Centers for Disease Control and Prevention expects cancer cases to rise due to the growth and aging of the U.S. population, shiitake mushrooms will likely get more popular.
I mean, if social media has inspired people to take wild risks on FAMI stock, surely, it can inspire people to take the much more predictably beneficial route of eating the underlying asset.
Make no mistake about it: FAMI stock is shiitake as a split one-syllable word, but it’s also one of the very few companies that offer direct exposure to this “miracle” ingredient. If you can handle the risks — which are plenty — Farmmi is not as crazy as you might think it is.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.