China Expert Technology: Will Price Adequately Compensate For A Scandal?

I know, I know. Only a few days ago I said that I didn’t see any reason to buy China Expert Technology (CXTI.OB) until the smoke clears. I just found one: a very low price. Investors absolutely crushed the stock following the announcement of CFO Simon Fu’s sudden departure, lopping off almost half of the company’s valuation.

Don’t get me wrong — I still think CXTI is very risky. I expect that the story behind Fu’s resignation will take some time to unfold, and whatever comes out will not be positive. But that doesn’t mean the stock is worth zero, or that investors like me who have a high tolerance for risk need avoid it at any price. When the stock dropped below $3.50 Wednesday, I became interested. Unfortunately I wasn’t quick enough to get filled at that level, but I did build a full position between $3.55-$3.71.

We’ll find out Friday whether the move was prescient or foolish. At 9:00am ET, the company will host an investor conference call with Mr. Huang [Michael] Tao, the Company’s Chairman and acting CFO “to discuss recent corporate events, the Company’s plan to relocate its headquarters to Shenzhen, PRC and search for a new CFO.”

Every stock has some price that adequately compensates for a scandal of uncertain extent.

Disclosure: Long CXTI.OB

CXTI.OB 1-year chart