Mushrooms And More: Why The Farmmi Stock Beatdown Looks Overdone

TM Editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Preview Points:

  • FAMI stock is trading at a valuation that should appeal to open-minded investors.
  • At the same time, Farmmi deserves respect as a premium-quality Chinese mushroom supplier.
  • Moreover, the company is expanding its operations beyond edible fungi, into intriguing niches like elderly wellness and forestry.

Founded in 2003 and headquartered in China, Farmmi  (NasdaqCM: FAMI) is hard to pigeonhole. Is it ag-tech? Vegan-friendly e-commerce? All of the above?

flat lay photography of mushrooms

Photo by Andrew Ridley on Unsplash

Despite this uncertainty, Farmmi isn't destined to be a one-trick pony. Unknown in America and unloved on Wall Street, FAMI stock deserves better as the company plants its seeds in more niches than one.

Doom, gloom, and 'shrooms

The company's web copy makes Farmmi sound like the Amazon (or at least, the Coupang) of agricultural products. In reality, however, Farmmi has developed over the past 18 years into a producer and seller of "edible fungi products" (mostly mushrooms). You can surely understand why that business line hasn't exactly set Wall Street on fire.

Down from $10 a share to $0.35 since 2018, FAMI stock is absolutely tanking. It's also down considerably since reaching $2 in February of this year.

At the same time, Farmmi is firing on all cylinders when it comes to new orders for shipments of agricultural products, and especially mushrooms:

  • Aug. 4: Farmii subsidiary Zhejiang Forest Food wins a multi-product order for export to Israel, for dried whole and sliced Shiitake mushrooms, and dried black fungus
  • Aug. 11: A multi-product order for dried whole and sliced mushrooms, and dried black fungus, to be exported to the U.S.
  • Aug. 17: A Canadian international trading company places an order for dried and/or sliced Shiitake mushrooms
  • Aug. 25: Yet another request from a long-term customer for mushrooms, this time for export to Vancouver
  • Sept. 1: Still another mushroom order, now for export to Lebanon
  • Sept. 7: Farmii receives an order for mushrooms, to be exported to Southwest Asia
  • Sept. 20: An additional requisition for mushrooms, for export to Southwest Asia

Cultivating a diversified business

Despite the company's apparent success in its chosen niche, don't get the idea that it's all about the 'shrooms. Indeed, a recent shareholder letter affirms that Farmmi is expanding its health and wellness business through the establishment of four new subsidiaries.

Additionally, Farmmi is expanding its forest-related business through an agreement to fully acquire Jiangxi Xiangbo Agriculture and Forestry Development Co.

A Xiangbo subsidiary owns an expansive tract of forest land in China, to primarily be used in the cultivation and production of moso bamboo (the main source of water bamboo shoots), camellia oleifera (a popular cooking oil), and Chinese Fir trees (favored by wood processors for plywood and other products).

On top of all that, Farmmi plans to invest in rehabilitation and elderly care management providers, which are benefiting from a spike in demand related to China's aging population.

In other words, FAMI stock is quickly becoming a more diversified investment. Sure, Farmmi's main competitive advantage is the company's status as a go-to provider of Asian mushrooms in multiple continents. Yet, broadening its business is a smart move as it could protect Farmmi against possible shocks to its main income stream (supply chain issues, extreme weather, etc.).

Why FAMI stock wilted

Value hunters really ought to be salivating at the opportunity with FAMI stock after its nasty year-to-date drawdown.

The numbers bear this out, as Farmmi's TTM P/E ratio of 3.13 and TTM P/S ratio of 0.13 suggest that there's an extreme bargain to be had here.

So, why has FAMI stock been all but abandoned on Wall Street? Just maybe, the market is punishing Farmmi simply for being a Chinese company. The sentiment against this region has a number of drivers beyond outright xenophobia:

  • Property-market giant Evergrande is collapsing
  • The relations between President Joe Biden and Chinese President Xi Jinping have been on-again, off-again
  • China has put regulatory pressure on some tech-focused firms, like Alibaba

None of this means that Farmmi is in any particular trouble. If anything, the company appears to be thriving – and supremely undervalued.

Food for thought

FAMI stock is cheap and, admittedly, volatile. The share price went up 26% on Oct. 6 despite the lack of any discernible catalyst, for example – yet, there have also been some gut-wrenching (and equally inexplicable) drawdowns.

So, it's appropriate for a small, speculative position if you're into deeply contrarian wagers.

That being said, Farmmi looks like a worthy under-the-radar play on the Chinese 'shroom boom, along with some recent offshoots into high-potential fields of endeavor.

Besides, sometimes today's most hated stocks are tomorrow's darlings. You never know – after conducting some due diligence, Farmmi just might grow on you.

 David Moadel is not a licensed or registered investment advisor, and has no position in any securities listed herein.

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William K. 2 years ago Member's comment

Quite an interesting article, along with an adequate analysis about the "why" of the price dumping. And at $0.35/ share, one can get almost 300 shares for $100. OF course actually purchasing a China stock may be an exercise, possibly.

Thanks for an interesting and potentially useful article.

Terrence Howard 2 years ago Member's comment

Agreed.  Definitely worth the read.