DiDi (NYSE:DIDI) did go public at $14 per share last June, but it never became one of the year’s best-performing initial public offerings (IPOs). In fact, many investors who plonked cash to purchase the stock ate humble pie due to the regulatory activity in China sharply pushing DIDI stock down.
However, shares of China’s version of Uber (NYSE:UBER) rose sharply after the Chinese government announced it would work to back foreign listings. This announcement was very timely for DiDi, which has been under pressure lately.
The development has restored confidence in the American Depository Receipts (ADR) market. Several changes to the regulatory environment in China have been happening for the last few years. In particular, rules about tech firms have changed significantly, and these have impacted foreign listed Chinese shares. With regulatory activity easing, investors are looking into U.S.-listed Chinese shares, leading to substantial volatility in their trading.
The Financial Stability & Development Committee of the State Council has said the Chinese government is determined to support capital markets and work in close cooperation with the Securities and Exchange Commission (SEC) to ensure compliance. In addition, they will also help Chinese real estate companies that are struggling.
China has been under pressure from the Russian invasion of Ukraine, which has caused major problems for its economy. Their government needs to make quick decisions to get back on track and maintain a stable economy. Therefore, the initiative makes sense.
DiDi, the Uber of China, has returned from the brink due to the announcement. One day after listing on the New York Stock Exchange last June, DiDi received a notice from Chinese regulators saying they had to delist. It then decided to pursue a listing in Hong Kong but again ran into trouble with regulators.
Is DIDI Stock a Buy, Hold or Sell?
DiDi went public at $14 per share last June and became one of the worst-performing IPOs of 2021. It fell into the penny stock category from an all-time high of approximately $18.
DiDi announced its delisting plans from the NYSE at the end of last year. However, it will now not seek a listing in Hong Kong. And the data security measures of DiDi’s apps still remain “inadequate,” and remain suspended from Chinese app stores.
Apart from these external factors, DiDi itself has certain issues it needs to iron out. For example, it is trying to expand in overseas markets aggressively. Revenue from international business has risen 57% so far in the first nine months of 2021. On the other hand, losses for that segment jumped to 3.99 billion yuan on an adjusted earnings before interest, taxes, and amortization (EBITA) basis.
Although the company is expanding, and its home market hosts the world’s largest middle class, I rate DIDI stock as a “Hold.” There needs to be more clarity regarding what will happen to DIDI stock moving forward. Are shares headed for forceful delisting, or will we see the company complete the requirements to pave the way for a Hong Kong listing before it is forced off the NYSE? These are questions that need answering before investors can make a long-term commitment.
On the publication date, Faizan Farooque 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.
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