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Is This Company Cooking The Books?

|Includes: Link Motion Inc. (LKM)

This could be one of the most volatile emerging stocks on the New York Stock exchange. Within a period of 12 months, shares of NQ Mobile Inc. (NYSE:NQ) have peaked at $24 only to fall to an all-time low of $6.79 during the first week of June this year. The company's stock has been hit by negative publicity, especially surrounding its accounting practices. From afar, NQ Mobile Inc. seems to be a promising company, but it is important to understand all the inherent risks before putting your money in this company.

About NQ Mobile

Based on the company's profile that accompanies its financial reports, NQ Mobile develops mobile security systems that help protect users from data theft and malicious software among other things. The company's products are targeted at two main market segments; private enterprises and general consumers. Through its subsidiaries, the company also develops mobile games, Internet applications, and mobile-to-cloud solutions as well as training and support services for its products.

Investor Fears

A string of alleged financial malpractices have seen investors dump this stock. Trouble began for NQ Mobile Inc. in October 2013, when research firm Muddy Water released a damning report on certain aspects of the company's fundamentals. The report claimed that over seventy percent of the company's reported revenues were "questionable" and some of the company's subsidiaries showing up on its balance sheet were "non-existent." Integrity of earnings reports are some concerns that investors have always raised about Chinese companies, including notable listed players such as Lightinthebox Holding Co Ltd-ADR (NYSE: LITB) and Country Style Cooking Restaurant (NYSE: CCSC).

A special committee set up to investigate the company has exonerated NQ Mobile Inc. from any unethical accounting practices. According to a report released by the committee on the 4th of June 2014, the company's reported cash balances and revenues were in line with public disclosure standards set by regulators.

Wining Back Investor Confidence

For a stock that has been the subject of negative publicity, winning back investor confidence is going to be key for a recovery in the share price. Having jumped by 27 percent on the day the committee released its findings, NQ Mobile Inc. has gone on the offensive, publicly selling portions of some of its holdings in small companies such as FL Mobile and Nation Sky to prove that these subsidiaries reflected on the company's balance sheet are real. However, closure to the matter will be when a full audit report is finally released by PricewaterhouseCoopers. This has not been done yet and has fuelled speculation and anxiety about what could be contained in the report. In the worst case scenario, it could lead to a delisting of the company.

In my opinion, it is likely NQ Mobile Inc. is going to be fully exonerated of any wrong doing, or the report itself may be inconclusive. Focus will then turn to the company's earnings reports which have of late been missing analyst's targets and showing fluctuations in both top and bottom line. For investors interested in high risk stocks with potential for high returns, NQ Mobile Inc. is a good pick, otherwise you're better off putting it in your watch list.