On the morning of July 18, after NQ Mobile (NYSE:NQ) announced in a press release that the Audit Committee had "dismissed PricewaterhouseCoopers Zhong Tian LLP (PwC) as its Independent Auditor," the stock sunk to a new 52 week low. However, investors seem to like the new auditor NQ has hired, and the stock has rebounded 93% in one week from the 52 week low set that day.
Some investors have been calling for the ousting of PwC as auditor for some time now. The sense by longs was that PwC was being too "cautious" and asking for too much information. NQ stated in the same July 18 press release that PwC had questions about the missing electronic data that would require PwC to "expand the scope of its work and, if investigated further, may cause it to be unwilling to rely on management representations in connection with its audit work." In other words, PwC was not going to sign off on the audit until NQ came up with a credible explanation for the missing data that the D&T "special committee" found. I certainly didn't know it would happen a week after I wrote it, but I had said the exact same thing in my last article NQ Mobile: Hurry Up And Explain It Already:
"a professional auditor is never going to give the anticipated "clean" audit if there is information missing. And an auditor is certainly not going to give a clean audit if the company does not even have a credible explanation for the missing information on many devices."
After the news came out about NQ firing PwC, the stock initially dropped early that morning and made a new 52 week low of $3.45. Then investors read the part in the report about NQ's confidence in Marcum Bernstein Pinchuk LLP. NQ stated: "Collectively, MBP and Marcum LLP are, a top 10 SEC practice accounting firm in the US and are a registered PCAOB member firm. The Audit Committee has full confidence in their ability to conduct their work independently, diligently, and expeditiously." It seems that the market embraced this change of auditors, because the stock reversed the loss and ended that day with a gain of around 15%. From the 52 week low that was set on that morning, the stock has soared 93% in one week.
The short-interest has dropped because some of the short-sellers started "buying to cover" at around $3.50. Remember, a short can only make a maximum of 100%, and that is if the stock goes to zero. I think some shorts figured they had made enough and began to cash in their huge 60 and 70% gains at $3.50 and that is what has constituted the small move back up over $6. But for NQ to go from the 52 week low of $3.45 back up to the 52 week high of $25.90 would be more than a 650% gain.
In summary, unless you want to gamble instead of invest, I don't see any reason to buy a stock who just fired an auditor over missing data and has no 2013 20-F report filed yet. I guess some new investors don't seem to care about the missing information on many devices like PwC did. And some new buyers may think they will see a 20-F materialize in a few months. If a 20-F does eventuate out of firing one auditor and hiring a different auditor then, of course, the gamble will pay off and the stock will go up. Some longs have given up on the "20-F bet" and sold long ago. Some longs have been gambling (and losing money) for 8 months waiting on the 2013 financials.
I will opine that the price will linger around $6.50 until stockholders once again become annoyed about no 20-F getting filed. I think investors will start getting frustrated and antsy like they did the last time no 20-F came out after the D&T investigation. That time, on April 30, NQ said: "The Company intends to report the final results of the investigation in connection with the filing of the Company's annual report on Form 20-F. The Company expects to file its annual report as soon as practicable following the conclusion of the investigation and the completion of the review of its financial statements by its independent auditor." But not only did the 20-F not come out "in connection with" or "as soon as practicable" after the D&T results, it never came out, and still hasn't.
When no 20-F ever came out last time, investors started selling and moved on. How long will investors wait for the 20-F to materialize this time before they begin to sell and move on?
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.