China-based pipemaker Huadi International (NASDAQ:HUDI) grabbed headlines on Monday but for dubious reasons this time. After a meteoric rise of 70% on Friday, HUDI stock came tumbling down 90% to start the first full week of November. Prior positive catalysts, particularly rumors about Beijing relaxing its coronavirus pandemic restrictions and a pivot to clean energy, faded dramatically.
Initially, HUDI stock launched into orbit last Thursday (when shares more than tripled in value) amid the underlying company’s intention to enter the clean energy space, according to a Bloomberg report. Broadly speaking, the transition aligns with the Chinese government’s global leadership in developing clean and renewable energy infrastructures, per the Center for Strategic and International Studies.
Another bullish factor bolstering HUDI stock last week centered on circulating rumors about China’s economic reopening. Throughout the new normal, Beijing imposed some of the strictest measures against the crisis, known as its zero-Covid policy. However, The Guardian reported that locals expressed anger and frustration at these mitigation protocols, suggesting the government would relent.
Other Chinese stocks popped late last week on the restrictions-easing rumors, such as technology flagship Alibaba (NYSE:BABA). As a speculative venture, though, HUDI stock managed to blast by its compatriots.
Reality Strikes HUDI Stock in the Face
Unfortunately for those hoping to ride Huadi’s momentum indefinitely, Monday’s session put an abrupt halt to the proceedings. Following its 90% implosion, HUDI stock is now looking at a loss of 19.5% in the trailing five days.
One of the most distracting news items centered on this morning’s announcement regarding Huadi’s direct offering involving two institutional investors. Per the terms of the deal, the pipemaker will sell one million of its ordinary shares at a price of $25 per share. As of the latest quarterly disclosure, Huadi had 13.24 million shares outstanding. More importantly, this deal represented an 86% discount relative to Friday’s closing price.
Given the steep bargain, the direct offering took the wind out of the clean energy pivot. Unfortunately, that wasn’t the only negative that sprouted recently against HUDI stock.
According to an Associated Press report over the weekend, “Chinese health officials gave no indication Saturday of any relaxation of COVID-19 restrictions, following several days of speculation that the government was considering changes to a ‘zero-COVID’ approach that has stymied economic growth and disrupted daily life.”
Adding to the woes for HUDI stock, Reuters recently reported that Covid cases again spiked in China, spurring more mitigation measures, not fewer. Without much evidence to the contrary, investors may want to treat Huadi’s rally as a one-off event.
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.
