FLJ Group (NASDAQ:FLJ) completed its purchase of property insurer Alpha Mind for $180 million in cash. The cash is being raised by a promissory note due in 90 days.
The deal was announced in November. FLJ runs an apartment rental service.
FLJ stock jumped on the news, rising nearly 44% in 24 hours to open this morning at $1.72 per share. That brought the market capitalization to about $2 billion.
Early trading has pared down those gains to around 10%, up at around $1.50 per share.
One Plus One Equals One
FLJ announced a 1-for-40 reverse stock split at the start of December. This came after it got a delisting notice from the Nasdaq in July. The company has been shrinking and losing money for years.
FLJ previously agreed to buy LianLian Holdings, which offers marketing and promotion to restaurants and entertainment merchants from Chengdu. That agreement has now been canceled.
Instead, FLJ will return its focus to real estate. Alpha Mind is an insurance agency and insurance technology business.
Despite its late December gains, FLJ stock lost 98% of its value in 2023. At the height of the Chinese property boom five years ago, FLJ sold for a post-split $3,800 per share. The company signs long-term leases with landlords and then manages the properties, acquiring tenants and collecting rent. It was founded in 2012.
According to American analysts, China’s real estate problems will take the rest of this decade to resolve. There is excess inventory, and prices are falling, even while many projects are still being built. The volume of outstanding property loans fell in October for the first time, and more government support is needed. Analysts say that policies meant to improve demand haven’t yet addressed the problems of developers’ credit risks.
Companies like FLJ are hurt in this deflating market as their old agreements with landlords anticipated rising prices.
FLJ Stock: What Happens Next?
FLJ will now try to survive with a broader business model, including insurance. Yet China’s macro issues will continue to weigh heavily on this volatile penny stock.
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As of this writing, Dana Blankenhorn did not hold (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.
