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Is Pearson that dim a bulb ... or worse?

|Includes:China MediaExpress Holdings, Inc. (CCME)

My astonishment was triggered by his piece published by TheStreet.com earlier this date.  You can link to it here:

http://www.thestreet.com/_yahoo/story/11019423/1/shorts-impact-on-china-stocks-lasting.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA#disqus_thread

Either way, his arguments fail to survive the guffaw test.

Let's examine his "logic," shall we?

//A primary problem with China small caps is that the investor base is largely dominated by retail investors as opposed to large institutions. Once burned by a stock collapse (whether justified or not), retail investors are more likely to say "never again" and abandon a stock regardless of how its fundamentals change. There are certain groups of China-focused investors (myself included) who continue to play these stocks on the fundamentals, but the fact remains that some outside capital that had previously been attracted is no longer chasing the individual stock in question, which results in a lower share price.//

Pearson conveniently ignores the growing institutional following of CCME for one. Secondly, he ignores the fact that even the despicable shorts (Citron, MW) have said that the company must be a fraud BECAUSE the numbers are simply too good to be true. Well, he can't have it both ways; if in fact the 10-K bears out the numbers (which I remain quite confident of), then every single institution with a stake now, as well as many watching the stock but waiting until the 10-K is released to take action, will create a tremendous amount of new buying pressure!

//An additional problem is the ubiquitous lawsuits that are filed almost as soon as the short report hits the new wires. Despite the fact that many of these lawsuits have no substantial basis (aside from simply quoting the short-sellers), their lawsuits create two problems. The first is "headline damage," which is simply that new investors who are researching the stock see a dozen or so lawsuits under the company's news headlines and decide to invest elsewhere.

The second is that these lawsuits are in fact time-consuming and expensive for management to defend against. The cost of defending against the lawsuits can create a temporary drag on earnings and can also create a distraction for management, which is trying to execute a business plan but is instead forced to expend time, money and effort in a lawsuit.//

LOL. Is this guy for real? As he acknowledges, the suits are baseless and grounded only in self-serving short-seller propaganda. As an attorney with over 26 years litigation experience in federal and state courts, I can predict with a reasonable degree of certainty that the cases filed to date are going NOWHERE but the trash can.

And not only are the allegations of the existing suits baseless, but the entire premise of the lawsuits will be utterly destroyed when the 10-K is released. Watch all the class action lawyers scurry for an exit then...

Thirdly, these lawsuits are NOT a drag on mgmt's energies and time. The attorneys handle 99% of the work, and the executives are consulted only periodically. And since I predict these lawsuits will be deep-sixed soon after the 10-K is issued, what expenditure of mgmt energies are we really talking about? ;-)

Lastly, Pearson conveniently ignores the fact that publicly traded companies get sued from time to time and all have insurance to protect themselves in that event. Lawsuits like this do NOT cause a drag on earnings.

//The final problem is just simple math. A stock that falls 50% needs to rise 100% to regain its original price, and a rise of 100% takes time and a lot of investor conviction.//

Perhaps this is the dumbest assertion of all. The author neglects the huge short interest in the stock, the fact that even the short sellers have said that the numbers are extraordinary (if true), that institutions are plowing into the stock, and that a lot more money (long-term capital and undoubtedly shorter-term momo cash) will literally POUR like a great Niagra Falls of pent-up demand into CCME after the 10-K is released.

In short, I give this article an "F." Frankly, this clown should be embarrassed for writing such amateurish tripe.

Disclosure: Long CCME

Stocks: CCME