Is LJ International Worth the Wait?

Another delay is hitting shares of LJ International Inc. (NASDAQ: JADE) hard. The company announced that investors will have to wait even longer to see financial results. This follows a similar announcement that came in June when the company extended its filing date.

The talk
With assurances over the past few weeks that the company would meet the deadline, the stock was bid up and was trading just under its 52-week high of $13.15 after a long period of consolidation. Hence, the disappointment is being reflected again today with LJ International shares gapping lower. Just a few days ago, the stock was trading at a very reasonable 17x 2007 EPS and 12x 2008 EPS estimates and after the drop would be considered a bargain. Based on past guidance, the company is looking to continue to achieve double-digit annual growth while also widening its gross and net margins and is planning on opening new stores ahead of the 2008 Olympics in China. The results will be good but audited financials are lacking.

The technicals
Holding steady above the 50-day moving average and consolidating, shares were setting up for a new high but have now cracked below $10.

The takeaway
While the first quarter of this year saw a lot of institutional activity in this name, bringing total institutional ownership to roughly 24% of the common stock, the short interest is also at an all-time high with 2.3 million shares short in the latest month, much higher from the 27,080 shares short this time last year. Shorts are betting on a delisting and continued lack of financial statements that will trip up the stock price. In the short term, that strategy has worked as frustrated longs have sold out and moved their money elsewhere. But if you decide to sweat it out, the company's strong jewelry business should ultimately inspire a comeback.

Comments

[rwboca]

After going from 4 to 12 in just a two month period, staying in that range for the next six months, is a red flag. With a remarkable rise like that, than firing there accounting firm? Another red flag. Now the new accounting firm is wadding through tons of bookkeeping garbage, not being able to meet the exchange commision deadline...and extention, is another red flag. So, I've folded my tent and sold my position in JADE and now I'm gone. Boy...I feel a 100% better!