As with most penny stocks, caution is warranted with Farmmi (NASDAQ:FAMI) shares. To some, the Chinese firm that focuses on processing and selling agricultural products — mainly mushrooms and other edible fungi — may seem like a bargain. As FAMI stock traded above $2 back in February and now trades at a mere 34 cents, it could truly pay off at current prices.

But what’s the story behind that lower valuation? Basically the company has diluted its stock in order to raise capital on two occasions this year. That’s bad if you were a shareholder when those events transpired. But for those who weren’t shareholders then FAMI stock represents an interesting proposition.

Farmmi is a perfect Catch-22 scenario. The company raised a lot of cash to prop up its stagnating business. But the problem is that it’s just short of impossible to trust the company.

The first raise came in late April when it took in $48.3 million by issuing 141 million shares at 30 cents a piece, selling a 21 million further shares as an underwriter’s option.

This essentially immediately tanked the share price because of the massive dilution that ensued.

Then, on Sept.13, Farmmi did the same thing again. Only this time bigger, issuing over 368 million shares at 22 cents each. That equated to $81 million in proceeds and brought the total of the two deals to well over $120 million in proceeds.

FAMI Stock Caught Up in Catch-22

The Catch-22 scenario is what you believe the firm will do next. On the one hand, the company clearly doesn’t care about its shareholders. Or at least it didn’t when it undertook each of those capital raises. When your stock trades at 80 cents, like FAMI was in late April, and you issue 141 million shares at 30 cents you have no intention of preserving stock prices and shareholder capital.

Likewise, in mid-September Farmmi again let shareholders know how much they don’t matter. FAMI shares were near 50 cents and the company sold nearly 370 million shares at 22 cents. That’s about as direct a slap in the face as a company can issue to its shareholder base as possible.

But it raises a question: Will Farmmi do it again?

It seems likely as management has scheduled an extraordinary general meeting for Dec. 20 to “increase the Company’s authorized share capital, and amend and restate the Company’s Memorandum and Articles in order to reflect such increase and to set up a staggered Board that is divided into three classes, where approximately one-third of the Board is elected each year and each individual director serves a three-year term.”

Money to Be Had

Imagine Farmmi takes the proceeds and directs them toward their express purpose of “general corporate and working capital needs and capital expenditures.”

In that case the company can likely make headway toward improving its share price significantly. I’ll state that I think it’s bordering on insanity to expect Farmmi to have much allegiance to its shareholder base at this point. Likewise, it’s pretty far out to expect that investors should trust the mushroom purveyor at all.

But, on the off chance that Farmmi doesn’t throw its shareholders under the bus for a third time, there’s money to be made.

I obviously have no insight into the thoughts of company management. And I’m skeptical by nature so I wouldn’t pull the trigger personally. Nevertheless, that is the opportunity presented by FAMI stock at this time.

Growing Business

Farmmi does seem to be growing at any rate. In the six months ended March 31, the company experienced strong growth. The shiitake and bai mu er mushrooms that make up 98% of its business grew by 31% and 37.6% in that period, respectively. Those latter fungi are used in many Chinese holistic medicines.

The company recorded $17.79 million of sales in those six months. If we prorate those results for an entire year then Farmmi looks reasonably attractive. The company recorded $30 million of sales in both 2019 and 2020. So, a prorated $34 million would clearly represent a win.

But the truth is no one can predict what Farmmi management will do to its shareholders in order to satisfy its growth goals.

And unless you have insider information that the company has changed its tack and won’t dilute shares further, there’s no way to jump in.

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Read More: Penny Stocks — How to Profit Without Gettting Scammed

On the date of publication, Alex Sirois 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.