Gulf Resources Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese salt and chemical manufacturer Gulf Resources (Nasdaq: GFRE  ) were getting hammered today, falling as much as 17% in intraday trading.

So what: Investors in Chinese small caps won't be surprised to hear that the drop in Gulf Resources shares appear to be driven by a report posted on blog aggregator Seeking Alpha. Today's note comes from Kerrisdale Capital Management and questions the believability of Gulf Resources' profitability and other financial metrics. Specifically, the author compares the company's metrics to those of comparable companies and concludes that Gulf Resources may be inflating its results.

Now what: This is the same old song and dance in the world of Chinese small caps. The group has had a pall cast over it by a handful of companies that have either admitted to some form of shenanigans or have been painfully silent in the wake of serious allegations. This has given short-sellers the definite upper hand, and they've been making the most of it by posting missives against an array of Chinese small caps that have obliterated share prices.

Who's right? Unfortunately, in many cases it's hard to tell, and because the operating companies are located in China, getting good, solid information is dicey at best.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2011, at 4:58 PM, kkawohl100 wrote:

    Kerrisdale Fraud?

    Kerrisdale Capital Management is a one man operation that lists its address in New York and claims to hold a short position on GFRE. The management company at that address has never heard of Kerrisdale Capital Management.

  • Report this Comment On May 19, 2011, at 6:17 PM, kkawohl100 wrote:

    GFRE Top Institutional Holders

    Holder Shares % Out Value* Reported

    FMR LLC 3,336,590 9.61 35,668,147 Dec 31, 2010

    VANGUARD GROUP, INC. (THE) 648,045 1.87 6,927,601 Dec 31, 2010

    BALYASNY ASSET MANAGEMENT, LP 500,000 1.44 5,345,000 Dec 31, 2010

    ROCHDALE INVESTMENT MANAGEMENT INC 330,764 0.95 3,535,867 Dec 31, 2010

    STRAUS CAPITAL MANAGEMENT LLC 282,500 0.81 3,019,925 Dec 31, 2010

    OBERWEIS ASSET MANAGEMENT INC. 266,800 0.77 2,852,092 Dec 31, 2010

    Two Sigma Investments, LLC 264,271 0.76 2,825,056 Dec 31, 2010

    HighTower Advisors, LLC 167,035 0.48 1,785,604 Dec 31, 2010

    Oxford Asset Management 115,624 0.33 1,236,020 Dec 31, 2010

    GUERRILLA CAPITAL MANAGEMENT LLC 112,070 0.32 1,198,028 Dec 31, 2010

    Top Mutual Fund Holders

    Holder Shares % Out Value* Reported

    FIDELITY DIVIDEND GROWTH FUND 2,476,640 7.13 22,190,694 Feb 28, 2011

    VANGUARD SMALL-CAP INDEX FUND 308,449 0.89 3,297,319 Dec 31, 2010

    Fidelity Select Portfolios-Materials 278,029 0.80 2,491,139 Feb 28, 2011

    Oberweis China Opportunities Fund 266,800 0.77 2,852,092 Dec 31, 2010

    VANGUARD SMALL-CAP GROWTH INDEX FUND 192,621 0.55 2,059,118 Dec 31, 2010

    Fidelity Global Commodity Stock Fund 188,595 0.54 1,689,811 Feb 28, 2011

    SATUIT CAPITAL MICRO CAP FUND 148,000 0.43 1,413,400 Jan 31, 2011

    VANGUARD TOTAL STOCK MARKET INDEX FUND 101,268 0.29 1,082,554 Dec 31, 2010

    ROCHDALE MID/SMALL GROWTH PORTFOLIO 96,000 0.28 594,240 Mar 31, 2011

    ROCHDALE MID/SMALL VALUE PORTFOLIO 89,500 0.26 554,005 Mar 31, 2011

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