Good investment?

http://finance.yahoo.com/q?s=CCME

So I'm looking at a Chinese advertising company that went public through a reverse merger. The company is Nasdaq-listed, but doesn't have analyst coverage from any major banks. The only firms that seem to follow it are Global Hunter Securities, Muddy Waters Research, and Citron.

In the past 3 days, the stock price was halved after two reports came out from Muddy Waters Research and Citron. I believe the reports might have been timed to coincide with the Chinese New Year, since no one is doing shit right now, apart from lighting up fireworks... and drinking...

Being from LA, I am somewhat familiar with Global Hunter Securities. It's a local boutique that does some stuff in the MM space.

Muddy Waters is a 1-man firm owned by Carson Block, the son of a prominent penny stock pump-and-dumper who got in trouble with the SEC before. It is allegedly based in Hong Kong. The "firm" published a report, noting that it holds a short position in the stock and urges investors to short the stock as well, claiming that the company is a phantom company.

Citron is a penny stock research company that basically tries to expose frauds, I think. Vaguely heard of it before.

I'm currently living in Central China...(just graduated and spending some time off backpacking in Asia), and I see this company literally everywhere. Like all over the buses and shit that I'm riding. I did some of my own internet due diligence, and pretty much came to the conclusion that the "evidence" he points to is basically bullshit. He just can't read Chinese and is misreading random stuff and then claiming it's "evidence." He claimed that 80+ percent of revenues don't exist, but the problem is they have Deloitte as their auditor and Starr International as a major investor.

I am thinking about going long on this stock, and am pretty god damn sure that this company has significant operations in China. Seems like a great investment, but for the stock to be halved.... in 3 days... because of some bullshit report? Is there something I am missing here?

Paper traders and high school students, please don't "contribute."

 
balooshi:
Get on it...

Claiming that 80 percent of revenues dont exist, whats his source? or reasoning?

some guesswork based on checking the sites of bus lines and seeing how many buses are actually running versus what the company said. but the thing is, i checked the same sites, and i am pretty sure he "misread" the site. but then again, i read chinese, and i'm pretty sure that he doesn't.

but i am wondering why the stock tanked so hard when the report is pretty much bull.

btw, i bought some calls a few minutes after posting this. i'm up $300 (30%). =]

 

I think it is a good investment esp at these levels. I hope it is as I'm long 5000 shares in a cash account. Initially bought at 15 months ago, then more last week when it dropped to $17 during the aftermath of the first (Citron) report. In hindsight, I wish I had bought in at $11 after the Muddy Waters "article". I've done as much due diligence as I can from the states. I was stoked to hear your experiences with CCME from your travels. I'm holding on to my shares and believe in this company. Helps to know that I'm in the same boat with Starr International/Hank Greenberg ($30M), Oppenheimer, & Deloitte Touche as well as legendary investor Mike Koza as CCME is his largest holding at around 18% of his portfolio. I'm encouraged by CCME beginning to fight back and they've announced a forthcoming point-by-point rebuttal. I'd like to see them pre-announce some of their earnings at the same time. A class action law firm is recruiting longs on the Yahoo CCME message board and elsewhere in preparation for possible litigation against Citron, Muddy Waters, and their principals for manipulating the stock.

 
Best Response

There's a ton of good analysis on Seeking Alpha for this name. I traded it on the drop after the accusations of fraud figuring the volatility would be in my advantage, but I'm not comfortable holding it for two reasons:

1) I tend to assume the worst regarding Chinese companies and the honesty of their management. While I am sure Muddy Waters had ulterior motives, there are some analyses on Seeking Alpha that make the case that the company is at least exaggerating some of its claims. I don't expect to see outright accounting fraud

2) The CV Starr investment has not closed. This is telling, especially since it's one of the main "for" arguments (along with the D&T audit and the various statements about Apple products, exclusive contracts, etc.)

To summarize: Arguments for: 1) CV Starr Investment: Hasn't closed 2) Management Claims re: exclusive deals, Apple products, etc: Probably exaggerated at best. 3) D&T audit: I'll give this one credit and assume that there is no outright accounting fraud here. 4) Great growth story. Once the dust settles this could be a good opportunity.

So all in it was enough to make a short-term play but not to hold. Again, a ton of great info on Seeking Alpha-I normally find a lot of the analysis on that site to be pretty superficial but this seems like an exception. There are screen shots, interviews, posts of translations of Chinese sites, etc.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Certainly doesn't guarantee anything but some of Muddy Waters' more aggressive claims re: fraud would be pretty scandalous if snuck under the nose of a Big 4 audit firm.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Kenny I agree but some guy from enron told me it was possible of you put your mind to it. Probably even easier on China.

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 
HPM:
Kenny I agree but some guy from enron told me it was possible of you put your mind to it. Probably even easier on China.
Philosophically I agree, but Enron was able to do what it did because of their scope and the complexity of their activities-derivatives, SPEs, massively complex corporate structure etc.

Falsifying cash balances and egregious abuses of revenue recognition for what is on a basic level a pretty simple business model are a little harder to get away with.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Yeah, I think it officially qualifies as a scandal now, and I guess that's why Starr never closed its investment.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

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