Seeking Alpha

Value Bulldog's  Instablog

Value Bulldog
Send Message
I am a research analyst for a long/short value-oriented hedge fund. Most of my attention is focused on the tech, telecom and media sectors although I occasionally look for value (or its opposite) in other areas. Note that I take long and short positions in the stocks I discuss on Seeking Alpha.... More
My blog:
Special K Seeking Alpha Blog
View Value Bulldog's Instablogs on:
  • Follow-up on ECHO's Q3 earnings
    Thought I should follow up on my article from earlier this week on ECHO after their Q3 earnings. First, I should say that I was pleasantly surprised that management actually addressed the contingent liability issues in their call. This is certainly a step in the right direction in terms of tranparency. To their credit, the business did show some moderate operating margin leverage and positive operating cash flow for the first time.

    However, the issus I raised are still valid. While non-cash contingent liability reversals were not 50% of operating income as in the first half of the year, they were still quite material at 28%. This time, the contingent liability reversal enabled ECHO to just barely make the EPs consensus number, rather than beating it by a penny. Of course, if you take out the division two more decimal places you get $0.1167 cents instead of $.12, so the contingent liability reversal was just barely enough for them to round up and make the number. EPS would have been $0.08 without the reversals.

    Most importantly the company talked about slowing growth and continuing margin pressure. Wall St. estimates and price targets came down. Usually the kinds of accounting issues I identified are signs of a weakening business, and this appears to be the case with Echo. A lot depends on how much more margin leverage they can get but the stock still seems quite expensive to me at 32x my estimate of this year's earnings ex-reversals. Time will tell if they will rebound or if there will be more shoes to drop.

    Disclosure: Short ECHO
    Tags: ECHO
    Nov 05 5:50 PM | Link | Comment!
  • Potential fraud appears to be pervasive in U.S.-listed China space
    Since Barron's published its expose on the U.S.-listed China reverse merger space August 28, seemingly every day a new China hybrid is blowing up.

    On August 30, serious fraud allegations began to surface regarding CHBT, and they have been followed up here and here.

    On September 3, CSKI lowered guidance and announced the resignation of its CFO with a very dubious-sounding explanation. The company has been publicly accused of fraudulent conduct in the past, and this announcement did nothing to help their credibility.

    On September 6, DYP shares tanked after it filed an 8-K with more red flags than a Chinese army parade, including the firing of its auditors and the resignations of top management and several board members. The company held a conference call to discuss the situation this morning and apparently did nothing to assuage investors, as shares are down another 19% as I type this.

    On September 10, FUQI announced it had recieved an SEC subpoena. This knocked the stock down from over $6.00 to less than $5.00 but for holders was merely a continuation of 6 month downtrend that started with the stock at $19 back in March.

    Today's winner is UTA, which is tanking after fraud allegations appeared on hedge fund blog Bronte Capital. Once again while the 30% decline today has to hurt investors, the stock was already down 50% YTD.

    These kind of blowups are not unkown, similar issues have arisen with CHNG and ONP to name just a couple. They seem to be coming a lot more frequently now though. The question is, how far does this go and when does it stop? I am pretty sure that among the hundreds of U.S.-listed China companies, there have to be some other frauds, especially among the reverse mergers. At the same time all this controversy also has to be depressing the multiples of some legitimate companies. As far as I know, none of the companies accused of fraud have been completely exponerated, although that could still come in the future.

    Still, given the amount of alleged fraud out there and the fact that these companies fall into a regulatory loophole where U.S. authorities have no jurisdiction and Chinese authorities don't care, I can't imagine why you would want to own any of these things. Maybe if any of them started paying cash dividends or if some were acquired for cash paid to U.S. investors the clouds will lift somewhat. Investors are probably much better off sticking with the large reputable companies Chinese companies as well as companies with a dual listing in China or Hong Kong.

    Disclosure: Short CHBT, CSKI, DYP, CHNG. No position in other stocks mentioned.
    Sep 15 12:26 PM | Link | 20 Comments
  • Nice Labor Day Weekend CSKI disclosure
     I've been following several of the articles recently about many Chinese reverse mergers appear to be frauds. Today, CSKI decided to follow the grand tradition of dodgy companies and make a damaging disclosure (lower guidance and a CFO resignation) right before a long holiday weekend. From their 8-K:

    "Management’s reduced guidance reflects the termination of relationships with certain private distributors, who after several rounds of discussions, chose to end their cooperation with the Company after learning that their business information was disclosed in the Company’s public SEC filings and would continue to be disclosed in such documents as required by SEC regulations. This disclosure, these distributors claim, has led to increased scrutiny of their financial performance by government authorities within China."

    Other than that I'm sure their business is totally on the up-and-up.

    Disclosure: Short CSKI
    Tags: CSKI
    Sep 03 6:19 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.