They call it FUD: fear, uncertainty and doubt. Based in China, ride-hailing giant Didi Global (NYSE:DIDI) has its fair share of problems, I’ll admit. But there’s also plenty of FUD surrounding DIDI stock.
For example, reports recently circulated claiming that China’s Beijing city government advised state-owned companies to invest in the “embattled ride-hailing giant.” However, the company categorically denies this. Didi noted the following:
“Didi is currently actively and fully cooperating with cybersecurity probe, foreign media reports that Beijing city government is coordinating companies to invest in it are incorrect.”
That’s only one example. There are other claims that prospective investors should know about as well. Overall, though, the best policy with DIDI stock is to be aware of the rumors but make decisions based on what’s real, confirmed and relevant.
A Closer Look at DIDI Stock
Before we start deciphering fiction from fact, let’s take a look at DIDI’s price action for a quick review. Didi’s initial public offering (IPO) took place on Jun. 30. That day, the stock began trading at $16.65 per share.
The stock price stayed close to $15 for a couple of days after the IPO. After that, however, sellers completely took control. DIDI stock tumbled below $10 in July, then below $8 in August. Now in early October, it trades at $7 and change.
Momentum-focused traders probably won’t like what they see with this stock. But bona fide contrarians should take a different perspective.
Remember, contrarians believe in buying during peak pessimism. When negative rumors are swirling and a stock is unloved, that’s the time to get in.
And consider this: if DIDI stock can get back to its IPO price, that would mean a more than 100% gain from the $8 mark.
So, let’s see what’s being said about Didi — and what investors should really be paying attention to right now.
Avoid the FUD Trap
Reportedly, it has been claimed that Didi President Jean Liu told close associates she intends to step down from her lead role at the company. However, investors should take this rumor with a grain of salt.
It might be tempting to believe anything negative that’s being said about Didi. The company is facing major challenges in 2021 due to cybersecurity reviews.
Yet, let’s not fall into the FUD trap here. For one thing, the sources alleging Liu is stepping down are not named in the published report.
In fact, anyone who panic-sold DIDI stock due to this might now be disappointed. That’s because the company has strenuously denied the rumors of an executive shakeup. The company noted:
“Rumors about management changes are untrue and unsubstantiated. We strongly condemn those malicious and repeated rumors fabricated and distributed on certain media against Didi.”
What to Be Concerned About
Now that we’ve addressed the FUD, though, let’s look at an issue that investors should actually pay attention to. There’s an old saying: you can’t argue with the numbers. In Didi’s case, the numbers to watch involve the company’s user growth — or lack thereof.
Unfortunately, Didi has reportedly lost 30% of its daily users since July, back when authorities began their crackdown. To be more precise, the average daily user count apparently declined from 15.6 million in June to 10.9 million in August.
This decline was bound to happen, especially since regulators banned the company from signing up new customers. But will the ban be permanent? There’s no way to know the answer to this question right now.
However, I will say this much: scary situations like this have a tendency to come and go. True, the user loss is a major concern for DIDI stock investors at the moment. But if the government comes to lift the aforementioned ban? The potential recovery could be swift and powerful.
The Bottom Line on DIDI Stock
Make no mistake about it: Didi faces numerous challenges. However, informed investors still have to separate what’s alleged from what’s confirmed.
One thing that is definitely true? DIDI stock has declined significantly since its IPO. That presents a great opportunity for traders to ignore the FUD and consider an audacious investment that could someday offer massive returns.
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On the date of publication, David Moadel did not have (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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.