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What: The long-running Longtop Financial
So what: Do Longtop's responses hold water? It's hard to say -- there are so many accusations, ranging from tax evasion to charges that the company failed to disclose "related party" relationships -- and intentionally purchased unprofitable companies (presumably also with the aim of enriching insiders).
It also doesn't matter. Longtop could produce written proof that everything it has done is kosher -- and the critics would respond that since you cannot trust anything you read in China, the evidence itself is a fraud.
Now what: Foolish investors really have only two options here. On the one hand, if you believe Longtop's accusers, you obviously should not buy the stock. On the other hand, if you believe management, you can't not want to own it.
While currently GAAP-unprofitable, Longtop's cash flow statement is a picture of corporate health. Last year, the company generated more than $82 million in cash profits, giving it a price-to-free cash flow ratio of only 14. It also has a 21% long-term growth rate, and more than $410 million net cash in the bank. In short, if Longtop is a fraud … it's the most profitable fraud I've seen in quite some time.
Want to learn more about Longtop Financial? Add it to your watchlist.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. The Motley Fool has a disclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.