China Jo-Jo Drugstores (NASDAQ: CJJD) stock price has cratered as the future of the company remains in peril. The shares plunged to a low of $0.67, the lowest level in months. It has crashed by more than 87% from the highest point in March, giving it a market cap of over $3.6 million.
Dilution machine and bankruptcy risks
China Jo-Jo Drugstores is a small company that operates several pharmaceutical and drugstores in China. As its name suggests, the company deals with over-the-counter medicines, traditional drugs, amd medical devices. It also sells these drugs in a wholesale basis.
China Jo-Jo has also been a dilution machine in the past few years. The number of outstanding shares has jumped from 658k in 2010 to almost 4 million today. And this week, the company said that it will continue diluting shareholders by raising $7 million. It will issue over 2.58 million shares at $3.10 per share.
Capital raising tends to have a direct impact of increasing the number of shares, meaning that existing holders are diluted. It is the exact opposite of share buybacks, which reduce the number of total outstanding shares.
It is also worth noting that China Jo-Jo has become a penny store again, with its stock trading below $1. Last year, the company found itself in this similar situation, which risked its Nasdaq listing. As a result, the company decided to have a reverse split that pushed its shares to $9.64.
Therefore, there are significant bankruptcy and compliance risks ahead. For one, a look at its website shows that it has not provided any meaningful disclosures to investors. The most recent financial statement came out in July last year when it published its fiscal year financial results. Those results showed that its revenue increased to $164.39 million while the net loss came in at $3.2 million.
Is China Jo-Jo stock a good buy?
I believe that China Jo-Jo is not a good investment. It is a penny stock that makes limited disclosures to investors. Also. there are challenges with disclosures considering that it is a Chinese company. As we saw with Luckin Coffee, small Chinese companies are difficult to evaluate well.
Most importantly, China Jo-Jo is a dilution machine. There is a high possibility that it will raise more cash again soon. Therefore, I recommend avoiding the company and investing in quality alternatives like CVS and Walgreens.
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