'Planet Money': The $100 Million Deli
RACHEL MARTIN, HOST:
Now to an economic mystery. In a small town in New Jersey, there is a deli, just a little sandwich shop. And according to the stock market, this one deli is worth roughly $100 million, and it is not because of some exceptional pastrami. Jacob Goldstein of our Planet Money podcast explains.
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JACOB GOLDSTEIN, BYLINE: It's called Hometown Deli. And it's Paulsboro, N.J. It came to the world's attention last month when a famous investor mentioned it as an example of the strange state of financial markets. I went to visit the other day. And it doesn't look like a $100-million deli. It's just a little gray, one-story building on a little residential street. There were no other customers inside when I went in.
I'm a reporter.
UNIDENTIFIED PERSON #1: Hi. How are you.
GOLDSTEIN: I wonder, can I order a sandwich?
UNIDENTIFIED PERSON #1: Yeah. You can order a sandwich. But we're just not having any reporter, like...
GOLDSTEIN: OK. So if I stop recording...
UNIDENTIFIED PERSON #2: Can you take that out there?
GOLDSTEIN: I'd be happy to take it out. If I put it back, can I come back and get a sandwich?
They weren't going to answer my questions. And I couldn't reach the deli's owners on the phone. But there is another way to learn a lot about the deli because it is a publicly traded company, meaning anybody who wants to can buy or sell stock. Official corporate name, Hometown International Inc. And federal regulations require publicly traded companies to publicly disclose lots and lots of information. One fact the company recently disclosed - as of a few months ago, all of the deli's stock was owned by, quote, "approximately 60 people." This fact is crucial to understanding how a deli in New Jersey could be valued at $100 million. The way you get this number - for that matter, the way you figure out what any public company is worth - is you multiply the last price the stock traded at by the total number of shares.
So if I sell you one share of stock for $10 and there are 10 million shares total, then the value of the company is $10 times 10 million, $100 million. That basically is what was happening with the deli. If you want to be fancy, you can say that the market capitalization of the company - or market cap - is $100 million. So that explains the number. But what is the point of the company? Why would a little deli in New Jersey need to be traded on the stock market at all? I asked Aswath Damodaran, a finance professor at New York University. And he pointed to another detail in the company's public filings. Many of the largest shareholders are based not in New Jersey, but in China. And he said one thing to note about many companies in China...
ASWATH DAMODARAN: The Chinese value a U.S. corporate structure.
GOLDSTEIN: Many companies in China want to be traded on the U.S. stock market. But it can be hard for those companies to go public the traditional way in the U.S. So the deli, Hometown International Inc., could provide a side door for a foreign company that wants to join the U.S. stock market. A foreign company could just merge with Hometown and avoid the scrutiny of a normal public offering.
DAMODARAN: So what it then creates is a structure you can use to bring almost any business in any other part of the world into a U.S. publicly traded company.
GOLDSTEIN: Maybe the lesson of the $100 million deli is not that the U.S. stock market has become completely detached from reality, it's that companies all around the world still really want to be traded on the U.S. stock market.
Jacob Goldstein, NPR News.
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