Yongye 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 fertilizer manufacturer Yongye International (Nasdaq: YONG  ) were taking it on the chin today, falling as much as 30% in intraday trading on heavy volume.

So what: For that keep tabs on Yongye, today's "news" sounds very familiar. Yet another report has surfaced that takes the company to task, citing numerous supposed red flags including the acquisition of the Wuchuan Lignite Coal Project, relationships with suppliers, efficacy of the company's product, and management compensation issues.

Now what: The report was released by Absaroka Capital Management, and if you're wondering who they are then that makes two of us. However, the note was given wide distribution by being highlighted by the well-followed Zero Hedge blog. Though the world of Chinese small caps has been plagued by companies apparently doing some very sketchy things, many of the accusations against Yongye are largely insinuation and conjecture. Without a smoking gun, this leaves Yongye investors wondering whether these allegations hold water or their stock is getting cheaper for no good reason.

Want to keep up to date on Yongye? Add it to your watchlist.

The Motley Fool owns shares of Yongye International. Motley Fool newsletter services have recommended Yongye International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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.


Read/Post Comments (20) | Recommend This Article (19)

Comments from our Foolish Readers

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  • Report this Comment On May 19, 2011, at 4:37 PM, 123spot wrote:

    Yesterday I received my glossy Yongye quarterly report. Very friendly, and nicely produced. Haven't cracked it yet to see if any of these recurring issues is addressed. Has anyone else? They are doing a good job of looking like a real business and continuing to hold their heads up. Will give this thing a read tomorrow when I have time and decide whether to buy more here.

  • Report this Comment On May 19, 2011, at 4:52 PM, goldminingXpert wrote:

    This report IS the smoking gun. You missed it. These aren't allegations anymore, the proof is there.

    Stock was down as much as 30%, just showing that while the market gets it, Yongye's cult followers will keep humming right along to the pink sheets.

  • Report this Comment On May 19, 2011, at 5:14 PM, somethingnew wrote:

    Stocks of anykind going down aren't proof of anything. Whether it comes to be true or not is anyone's guess. Why stock holder's even give a damn is my only question. I own some Yongeye and could care less. I figure if it is a legitimate company than 20 years from now it will still be around. If it's not, oh well, so I lost some money. The only people it seems that really should care are those who are thinking about buying any Yong or those that are already shorting it.

  • Report this Comment On May 19, 2011, at 5:33 PM, zippbrain wrote:

    Global Gains team a little red faced?...nice.

  • Report this Comment On May 19, 2011, at 5:35 PM, goldminingXpert wrote:

    The company has been saying it would address its stock price since the 6s. The fact they haven't is all the additional proof you need. That's why the stock price matters.

    If the company were legit, why don't insiders buy stock for themselves, pay a dividend, do a going private deal, etc? Answer, because the company isn't legit. They haven't even tried to rebut the Absaroka piece or Richard Roe's fine work.

    The story is over here folks.

  • Report this Comment On May 19, 2011, at 5:41 PM, buffalonate wrote:

    Who wants to bet the company doesn't buy back shares and the insiders don't buy shares either. Peter Lynch said the only reason insiders buy stock is because the stock is cheap. This stock is cheap by any definition if you believe their numbers so why do they never buy back shares. That is big red flag. They could put the short attackers out of business by buying shares but they won't.

  • Report this Comment On May 19, 2011, at 6:03 PM, buffalonate wrote:

    I wonder if Rich Smith is feeling stupid for constantly pumping this stock and then watching it crash.

  • Report this Comment On May 19, 2011, at 6:28 PM, TMFKopp wrote:

    @goldminingXpert

    I'm curious to hear what you believe are the sections of the Absaroka report are rock-solid proof. Certainly none of it sounds good, but I'm still not seeing a smoking gun here.

    Unless we're redefining smoking gun as something other than an irrefutable evidence that the crime in question has been committed. Or if we're worried primarily about whether the product was actually developed at Stanford -- because there definitely seems to be a smoking gun there.

    Matt

  • Report this Comment On May 19, 2011, at 7:02 PM, ETFsRule wrote:

    In section 5 of the report they say,

    "these claims simply do not correspond with credible, peer-reviewed research on the topic."

    This is false, and it leads me to question the validitiy of the entire report. After all, if they are lying about one issue, who knows what else they are lying about?

    Somehow they found one study concluding that fulvic acid did not show a benefit... but this doesn't change the fact that the vast majority of the peer-reviewed scientific research has shown that fulvic & humic acids ARE beneficial for crop growth. It's all explained here:

    http://seekingalpha.com/instablog/200403-deepfryer999/166504...

    Disclosure: no position in YONG. I just don't like to see people spreading false information.

  • Report this Comment On May 19, 2011, at 7:02 PM, nanoguy wrote:

    After reading the proxy material and the recent 10-K, I believe the company is trying to address concerns of transparency. Information about the complex structure and Mr. Wu's potential conflicts of interest are clearly stated. Also some of the difficulties of doing business in the PRC, such as licenses, are discussed.

    The company youtube video is an excellent example of their marketing (consistent with their recent award and the claimed growth in sales.

    The bios of Mr. Wu and Mr. Yu indicate they both have senior level experience, and should be capable of acting capably and responsibly in their roles.

    So, what is making investors nervous? It could be partly a lack of understanding about how business is done in the PRC, and partly a lack of trust that even if the business itself is very successful that the external Yongye Intl stockholders will share appropriately in that success.

    Of course the same could be said for almost any company. If continued access to public markets is desired, then senior management must not only act responsibly, but work diligently to build and maintain that "trust" relationship with its stockholders..

    A good first step would be demonstrating this committment by tying executive compensation closely to long-term shareholder value.

  • Report this Comment On May 19, 2011, at 8:07 PM, cattywampus wrote:

    Geez Louise! The emotional content of some of these comments is borderline extreme. Warning people about what you think might be a bad investment is an admirable undertaking, personal insults are another matter. I've only been buying stocks for a year, so I'm a novice. I have been interested in watching how the articles on Seeking Alpha, (been reading it for about 4 months) have apparently made these Chinese stocks go up and down. I did put YONG on my caps to go up at $4.04.

    I'm sure the MF staff are restricted in how they can respond to personal comments and rightly so.

  • Report this Comment On May 19, 2011, at 9:14 PM, padparadsha wrote:

    China is containing inflation and a major rebound in chinese stocks is expected soon. Now a bunch of chinese stocks with high short interest have been under attack. See the connection ?

  • Report this Comment On May 19, 2011, at 10:34 PM, john795806 wrote:

    There's no doubt that the only purpose of the Absaroka report was to drive the price of Yongye down before options expire on May 21st. The timing of this report isn't an accident. If you want to get a feel for what Absaroka is all about, check out their completely uninformative website.

    This does not mean that all of their information is false, though much of it clearly is. My bet is still on Yongye, and I'm protected from a catastrophic loss by having purchased options--October calls. So I have until October for the stock to rebound, and the worst I can suffer is what I invested in the options, which is considerably less than my potential loss had I purchased the stock outright. The bottom line for me is that this stock will shake out one way or the other by October. To me, options are the way to go on this stock, whether you believe it's a fraud or not, because either way, you can stand to profit a lot with minimal downside exposure.

  • Report this Comment On May 19, 2011, at 10:37 PM, martinedeboodt wrote:

    my problem is that I bought YONG more than a year ago at >$7. It has been going down since the past couple of months and I decided to sell now to cut my losses. If the stock recovers, I will buy it back after 1 month (so I can deduct my losses) and ride it upwards. If all these rumors turn out to be true it was still a wise decision to sell and cut my losses.

  • Report this Comment On May 19, 2011, at 11:40 PM, GreatPricePearl wrote:

    http://www.marketwatch.com/story/yongye-international-respon...

    Yongye International Responds to Allegations in Purported Analyst Reports

    BEIJING, May 19, 2011 /PRNewswire via COMTEX/ -- Yongye International, Inc.

    (NASDAQ: YONG) ("Yongye" or the "Company"), a leading agricultural nutrient

    company in China, today responded to recent analyst reports and web-based

    articles which inaccurately characterize Yongye's business, make false

    accusations regarding the Company's financials and related party transactions,

    and draw unwarranted inferences from documents that were filed by third parties

    with the Chinese government. The Company believes that these analysts and or the

    parties that have hired or are affiliated with them have engaged in reckless

    attempts to negatively influence trading in Yongye's securities for their

    financial benefit. Given the number of ill-founded assertions in these articles

    we will confine our comments to those issues that are most egregious. . . . .

  • Report this Comment On May 20, 2011, at 12:22 AM, somethingnew wrote:

    "The company has been saying it would address its stock price since the 6s. The fact they haven't is all the additional proof you need."

    I don't care if the company addresses the stock price or not. When I say "Stocks of anykind going down aren't proof of anything" I mean the actual stock price not what Yongeye company people said or didn't say about their stock price. Again I could care less about about what Yongeye spokespeople say because it could theoretically be true or untrue.

    "If the company were legit, why don't insiders buy stock for themselves, pay a dividend, do a going private deal, etc? Answer, because the company isn't legit. They haven't even tried to rebut the Absaroka piece or Richard Roe's fine work."

    Again, I don't have to answer because quite frankly I don't care. lol I think I may be the only one who doesn't. Short sellers and longs who both want to defend their egos on who's right or wrong about Yongeye care but I don't. Like I said "I figure if it is a legitimate company than 20 years from now it will still be around. If it's not, oh well, so I lost some money." I remain neutral on this. Stock investing is a gamble and I don't wish to speculate whether they are legit or not because I don't have all the answers. I will let time decide on that.

  • Report this Comment On May 20, 2011, at 8:07 AM, Skittles1lbs wrote:

    Has anyone tried to look up information about Absaroka Capital management? I have. This is what I've found:

    A simple whois of absaroka.com yielded no info other than the domain is registered via proxy services (anonymous or proxied registration are usually used by shady individuals for puposes to defraud people like malware that asks for your credit card). No webmaster to contact... nothing. Whois normally gives you info on who owns the website/domain, including numbers and address.

    Tried searching on SEC's website and it shows nothing about Absaroka Capital Management.

    Google search their office address... nothing.

    Google search the company's phone number and I've found no info regarding their phone number other than through some document they submitted for websites to post. The number in the document is 370-222-808. Reverse phone lookup and it shows no name tied to the number.

  • Report this Comment On May 20, 2011, at 7:15 PM, deedek3 wrote:

    u recommended this co. recently. I practically spent my lifesavings on it !. DID U go check out this co? On what bases did U recommand it? I guess I can go on foodstamps now.

  • Report this Comment On May 20, 2011, at 11:42 PM, anuvaka wrote:

    I get tired of this. There is really no information on either side, just opinions. The Company of course will say 'everything is fine' , Absaroka is either a short seller blog or a whistle blower.

    Because it is a foreign stock and a China stock there is a rwal lack of information.

    I'd like to see TMF, or the MDP team do some real background on this and add information. Reading all the net chatter tells me nothing positive or negative.

    This is the reason I have avoided International stocks for a long time, either there is no regulation on earnings or the earning come from a magic wand.

  • Report this Comment On May 21, 2011, at 11:40 PM, lowmaple wrote:

    To spend your life savings on one stock is obviously not the safest route to make money.I will go out and buy more since i wrote calls on some of the stock i own This way I will hopefully make money both in directions.

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