Today, investors in U.S.-listed Chinese social media company Renren (NYSE:RENN) are seeing more impressive gains. This is one Chinese stock that has flown under the radar, for the most part, this year. Despite various concerns around Chinese regulatory crackdowns, RENN stock has continued to outperform.
Investors were able to pick up shares of RENN stock around $5.50 per share to start this year. Since then, this Chinese social media play has surged above $24 per share today. That represents returns well above 300% for investors who stuck with this company through thick and thin.
Indeed, this is a company that’s been embroiled in some rather nasty legal proceedings of late. The company’s shareholders have sued Renren, alleging Renren insiders spun off a valuable stake in SoFi Technologies (NASDAQ:SOFI) for below market value. This spinoff was one that the courts agreed was designed to strip the company of some of its best assets. Accordingly, investors in RENN stock are expected to be paid approximately $300 million to be made whole.
Let’s take a look at why Renren is taking off on this news.
RENN Stock Soars on $300 Million Settlement Deal
Renren’s CEO Joe Chen orchestrated an incredible spinoff deal. The company approved a spinoff of Renren’s stake in SoFi, allowing only accredited investors to retain shares in the spun-off company. Accordingly, roughly 20% of investors in RENN stock who weren’t accredited, weren’t allowed to participate in the spinoff. While they received a cash payment, investors lost their exposure to what was really one of the best assets within Renren at the time.
It’s worth noting that Renren is a declining social media platform in China. The company has been making moves to stay alive, including switching market niches, targeting the used car resale market. What was once touted as “China’s Facebook” has turned into a low-tier social media player in China.
Renren investors appear to view this settlement deal positively for two reasons. First, it removes the cloud hanging overhead for this company. Any removal of uncertainty is a good thing.
Secondly, many investors expected the payout to potentially be much larger. This settlement ensures Renren will continue on and be able to focus on growing its business.
That said, this is a company that still looks like it has a lot of hair on it. Accordingly, investors looking to buy this pop may want to be cautious with this stock right now.
On the date of publication, Chris MacDonald 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.
