Mecox Lane 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 online retailer Mecox Lane (Nasdaq: MCOX  ) fell as much as 13.5% in early Monday trading after the company was notified that it faces at least one class action complaint about its IPO in October.

So what: U.S.-based Rosen Law Firm alleges that, contrary to Mecox Lane's IPO registration statement, its gross margins were being hurt by increased costs and expenses. So when Mecox Lane's shares fell a staggering 40% last week on a big jump in expenses, it was simply "the truth," according to the complaint, being revealed.

Now what: It's often profitable to be greedy when others are fearful, but this isn't the situation. Mecox Lane said it believes the complaint "lacks any merit" and plans to "defend themselves vigorously," but with a 60-ish P/E, it's really not worth the risk. Company insiders liquidated more than $129 million worth of Mecox Lane shares in the IPO, so investors might be wise to follow their lead.

Interested in more info on Mecox Lane? Add it to your watchlist.

Fool contributor Brian Pacampara doesn't own a position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

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 December 06, 2010, at 2:33 PM, jthol wrote:

    It would be interesting to know if Brian D. Pacampara has a short position on Mecox Lane.

    This could explain his conclusion. Investors might have been silly to buy the IPO at $11.00 and push up the stock to $18.00.

    I don't see any point to be bearish at $7.00. It's time to buy. This is why i question Mr Pacampara's bearish conclusion and suspect he has a short position .

    It would be nice for WSJ readers to know if the writer has any position on the shares they comment on.

  • Report this Comment On December 06, 2010, at 4:10 PM, davaidesign wrote:

    "Fool contributor Brian Pacampara doesn't own a position in any of the companies mentioned."

  • Report this Comment On December 06, 2010, at 4:48 PM, zackferret wrote:

    Brian,

    your story is incorrect. Our law firm, Kahn Swick & Foti, is the only law firm that filed suit against Mecox Lane. Rosen did not file suit. Our firm site is www.ksfcounsel.com.

    Lew Kahn

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