Citron Research (formerly known as StockLemon.com) is at it again. I first became aware of this site a few years ago but it wasn't until their profile of Home Solutions (HSOA) that I began to follow their research. That stock has plummeted to below 2 since Citron began hounding the company. Despite the rumored questionable past of its founder Andrew Left (there is an entire blog dedicated to it), the company does provide some incredibly in depth research highlighting the shady business practices of certain businesses.
The only problem I do have is that Andrew and certainly its employees take positions in these companies ahead of the reports and undoubtedly profit big time as the disclaimer on the site says:
The principals of Citron Research most always hold a position in any of the securities profiled on the site. Citron Research will not report when a position is initiated or covered. Each investor must make that decision based on his/her judgment of the market.
This kind of front running needs to be stopped immediately because it can lead to a fabrication of the facts. Sure, there are many bloggers out there who write about stocks they own including myself, but when certain websites achieve a wide following and can impact a stock like Citron Research can, it has to be stopped.
The latest Citron Research report highlights Bidz.com (BIDZ), a stock I recently traded in the Self Investors Model portfolio and fortunately closed for a quick 30% gain before this debacle began. Since that report was published, the stock is down more than 50% in just two days and sinking another 3 bucks after hours as the company seeks to calm the nerves of investors. More on this in a bit.
There are certainly quite a few angry investors out there looking to place blame not only on Citron for running the article, but on IBD who had the stock listed atop the the IBD 100 and recently profiled it with a glowing review, not to mention the Roth Capital and Think Equity buy ratings.
The company obviously had no choice but to respond to this action and chose to hold a conference call. Big mistake. Have a listen to the conference call. During the first half, the CEO just reiterates that the company is strong, reaffirms the numbers, mentions they might pursue legal action.. blah, blah.
The most interesting is the second half when the company takes questions. Zinberg certainly stumbles a bit when asked about the inflated prices of televisions and a yellow ring currently under auction for half a milion dollars at the site. I certainly didn't walk away feeling tremendously confident about this company or its CEO, and it's clear that many others didn't either as the stock tanked during the latter half of the call. Eric Savitz of Barrons has a good rundown of the highlights of the call if you're short on time.
As usual, this is most likely a case of "not as bad or as good as it seems". The important thing to remember is that there are a ton of great companies out there run by management with a long history of success, so why look at this as a buying opportunity? There are just too many questions to be answered.
More importantly, why were these angry traders hurt so badly? The kind of selling volume that BIDZ was seeing on Nov 26th and a close at the lows of the day should have at the very least got you out of the stock with a small gain (had you bought at the proper breakout point above 15.19). I personally love this kind of volatility for day trading and believe it could run up 20 - 30% within the next day or two, but to be a "buy and holder" of this stock right now is in my opinion a mistake.
It should be interesting to see how this story unfolds over the next few months. Keep in mind that Citron Research is expected to come out with a second part to their Bidz.com research detailing the bid rigging allegations very soon which could further derail the stock.