Chinese stocks of any form can't catch a break -- reverse merger or not. The question of the day is: Do they even deserve one?
The management team at Advanced Battery Technologies
Like countless Chinese reverse mergers of late, it has only taken one potential whistleblower to potentially spoil the parade. To date, we've seen claims of questionable accounting at Rino International, China-Biotics, Shengda Tech, Harbin Electric
In late March the company was the target of a bearish report by Variant View Research, which highlighted 12 reasons to short it. To summarize, the report questioned whether the company's customer arrangements even exist, while also questioning how it could have grown revenue as quickly as it has without introducing a revolutionary technology. It doesn't help that Advanced Battery recently entered into a $20 million acquisition of a company that its chairman, Fu Zhiguo, once held an executive position in -- potentially netting him a nice payday.
On paper, based on reported results from Advanced Battery, the company seems too good to be true. The company is trading at just a fraction of its book value and purportedly has $86 million of cash in the bank. Then again, I have to wonder why a company trading below its cash value would choose to initiate a stock buyback of only $10 million, when a significantly larger amount of cash supposedly exists in the coffers.
Needless to say, Chinese reverse mergers leave a lot to be desired for the common investor. Too many bad apples have spoiled it for the bunch. It will be quite some time and many auditors down the road before investors feel safe investing their hard-earned money in these companies again -- myself included. Advanced Battery is going to need more than just a $10 million buyback to woo optimists back into the stock.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. 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. The Motley Fool has a disclosure policy that only deals with facts.