Apr 23, 2021 4 min read

Imagine a little deli operating in one of our small towns. If its combined sales for the past two years were $35,748, what would it be worth?

That works out to an average weekly sales volume of $343.73, or just over $52 per day if it was closed on Sundays. Most people would wonder how it could even stay in business. Rent, utilities, property taxes, payroll and all other costs have to be much more.

Yet, on Feb. 8, a single deli with these financials had a stock market cap of $113 million! Tiny Hometown Deli is in Paulsboro, N.J., the sole location of Hometown International.

According to the tracking firm FactSet, it appears to have started trading on the over-the-counter market in 2019. According to the company’s latest 10-k filing, the store was closed from March 23 to Sept. 8, 2020, because of the pandemic. During this time, the stock price rose from $3.25 to $9.25 per share. It last traded at just under $14 per share.

The name “International” must have attracted so much interest and investment. It clearly was not profitability.

Similar things happened during the dot com crash in 2002. All you had to do was come up with a catchy name that ended with .com and your company was instantly valued at a high value. You did not even need a profitable operation. Many of those companies went bankrupt and millions of investors lost a lot of money.

Warren Buffett believes the best way to judge whether market valuations are correct is to look at the ratio of gross domestic product (total market value of goods and services produced within a country) with the total market index value.

This is the market value of all stock and debt obligation of American companies. It currently stands at 201%, which correlates to significantly overvalue. This should be a concern. In the past 10 years, the Dow has gone up 264%. Is this realistic?

The market over the past few years has been driven primarily by a few large tech companies. Recently, they have slowed and a broader sector has been increasing. This is a good thing.

Comparable sales volumes to last year are pretty easy for many companies because we were in a pandemic. However, this does not mean the stocks have to go up, as the market already had priced this growth in.

Inflation is picking up, as anyone who has bought groceries, gasoline, lumber and many other things knows. Anyone trying to buy a new house must pay more than market value.

Sometime soon, the Fed has to end the unrealistic world of 0% interest rates. This will have a large impact on the stock market. Washington will have to stop distributing Monopoly money to everyone. Taxes must skyrocket to pay off all of the money coming off the printing presses.

Thirty years ago, the Japanese Nikkei 225 stock market crashed. It still has not recovered, and Japan’s economy was in much better shape than ours. That was not a debtor nation. It has been a rough journey for the people of Japan who happened to retire at that time.

What could this do to your retirement? Rebounds can take decades.

By all measures, today’s stock market is highly valued, thankfully not as much as Hometown Deli. Retail investors are entering the stock market in droves. They do not understand the complexities of their investments.

People have been spoiled into thinking that corrections happen like last March, and a month later the market recovers only to go higher. Sooner or later, economists and mathematicians will tell us that we will have revision to the mean and history will repeat itself. That will be the day of reckoning.

A pound of pastrami is only worth so much.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.