DiDi Global (DIDI) is a well-known ride-hailing company in China. Basically, it’s China’s equivalent of America’s Uber Technologies, Inc. (UBER). Yet DiDi is facing problems that Uber isn’t right now.
Specifically, Didi is being targeted by China’s regulators amid a broader cybersecurity crackdown.
Some folks might even say that DiDi has become the poster child of problematic U.S.-listed Chinese stocks. There might be validity to this idea, but investors should keep a cool head and consider the possibilities here.
If you’re serious about “buying when there’s blood in the streets,” then you could be staring at a prime opportunity with DIDI stock. It’s a true test for contrarians – and only recommended for the most risk-tolerant among us. (See Didi stock charts on TipRanks)
A Quick Look at DIDI Stock
DIDI stock hasn’t been around for very long, as it just had its IPO on June 30. The stock started trading on that day at $16.65 per share, and stayed close to the $15 area for a couple of days after its public debut.
Unfortunately for the folks who held their shares, the price action got nasty after that. By July 12, DIDI stock was barely above $11.
Checking in on July 28, the share price had fallen all the way down to $8.04. It just goes to show that chasing stocks during their IPO hype phase isn’t necessarily a profitable strategy.
Meanwhile, DiDi’s trailing 12-month earnings-per-share is -$2.31. That’s not a positive sign when the stock is trading at around the $8 level.
Without a doubt, investors will want to see that EPS number move into positive territory. Still, now that DIDI stock is at a reduced price point, there might be a bargain here – but first, it’s essential to understand why the stock tumbled in the first place.
A Giant Under Pressure
It’s really not an exaggeration to call DiDi a giant in the Chinese ride-hailing market. It’s like Uber, but bigger.
However, regulators in China seem to think that DiDi poses a cybersecurity threat. Thus, the Cyberspace Administration of China reportedly ordered the nation’s mobile app stores to remove Didi’s main app from their offerings.
That’s a major blow to DiDi’s business, of course. The silver lining is that apparently, users who had already downloaded Didi’s apps weren’t affected by the regulator’s order.
Prior to this action, the Cyberspace Administration of China launched a cybersecurity review of DiDi. On top of that, the regulator reportedly banned DiDi from accepting new users in China.
In a social media posting, DiDi assured that the company guarantees personal data security. Of course, this wasn’t enough to assuage the shareholders, and DIDI stock faltered.
Taking it in Stride
Fast forward to July 26. On that day, investors learned that Chinese companies listed on U.S. stock exchanges will be required by the SEC to disclose the risks of the Chinese government interfering in their businesses. That’s according to Allison Lee, a top U.S. Securities and Exchange Commission official.
And so, the low-key war between the U.S. and China continues. Market traders sold off DIDI stock upon hearing of this requirement, but then the share price quickly rebounded to break-even for the day.
This is significant as it demonstrates how investors can adapt and even take adverse news in stride. Yes, U.S.-listed Chinese companies will have to disclose certain risks now, but it seems unlikely that many market traders will behave differently because of this.
This situation is reminiscent of the labels on junk food. People know about the high fat and cholesterol content, but they’ll continue to eat what they like.
Likewise, frankly, the risk-disclosure requirement won’t likely have much of an impact on investment into DiDi. Moreover, the rapid intra-day recovery of DIDI stock shows that the worst may be over, as the bad news for DiDi seems to be priced in already.
Wall Street Weighs In
According to TipRanks’ analyst rating consensus, DIDI is a Hold, based on 1 Hold rating. The average Didi price target is $12, implying 49.25% upside potential.
There’s no denying that tensions between China and the U.S. remain present, and could persist for a while.
Yet, these tensions might already be factored into the DIDI stock price.
Consequently, bold investors might see a trading opportunity here. Just please don’t load the boat on DIDI stock, as governments and regulators could continue to apply more pressure.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.