At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

"You're a fraud!"
It's not often you see Wall Street use language this stark. Rarer still does a respected analyst accuse a Nasdaq-listed stock of blatant thievery … and the stock price not react a whit. Yet that's exactly what happened when Absaroka Capital initiated coverage of Yongye International (Nasdaq: YONG) with a "conviction sell" rating this morning: Nothing.

Oh, I'm sure the stock will eventually bounce around a bit as the news filters out.

After all, Absaroka didn't exactly mince words. According to the analyst, Yongye's purchase of an interest in a lignite coal mine last year (ostensibly for the production of its fertilizer) was "not a legitimate transaction." Rather, it was asset-stripping, plain and simple -- a blatant scheme to transfer shareholder dollars into insider pockets. The analyst then proceeded to run down a list of eight separate accusations against Yongye, ranging from "intertwined relationships" with its suppliers, to bogus claims of having ties to Stanford University, to selling an ineffective product to easily duped customers.

And to investors who believe none of this can be true so long as Yongye is audited by a "Big Four" accounting firm, Absaroka suggested they examine the examples of several other Chinese smallcaps also audited by Big Four firms, also supposedly guilty of fraud:

  • China MediaExpress (Nasdaq: CCME), audited by Deloitte Touche Tohmatsu.
  • China Agritech (Nasdaq: CAGC), audited by Ernst & Young Hua Ming.
  • Wonder Auto Technology (Nasdaq: WATG), audited by PriceWaterhouse Coopers Zhong Tian.
  • China Integrated Energy (Nasdaq: CBEH), audited by Yongye's very own KPMG.

"I know what you are, but what am I?"
So far, Yongye has issued no response to Absaroka's accusations … but then again, maybe it doesn't feel the need. For while the analyst presents its report in great detail, and adds considerable "color" to the debate, the underlying accusations leveled by Absaroka have been raised by others, time and again, and rebutted point-by-point by Yongye management. (For that matter, I've had my doubts about Yongye as well -- before finally becoming convinced.)

And perhaps that's the reason investors aren't reacting to this latest report: It's not really news at all. We've heard it all before. In contrast, what we haven't heard of before is … Absaroka Capital.

Absaroka itself is a bit of an unknown, you see. A Wyoming-based "private investment manager that catalyzes on special situations, event-driven, and deep-value opportunities," Standard & Poor's Capital IQ service has never heard of "Absaroka Capital," and even Google-mentions of the company are few and far between. To learn more about the company, I contacted Absaroka this morning. What I learned is that Absaroka is a relatively new hedge fund, in operation about a year, and run by a former JPMorgan natural resources analyst. The firm's founder seems earnest, competent, and convinced of the bear case against Yongye. The firm's well-put-together .pdf report on Yongye is the result of a months-long "deep dive" into the company and its operations, assisted by on-the-ground analysts in Beijing who've investigated Yongye's operations (but been unsuccessful in discussing them with management.) In short, the analyst has done his homework, and made a reasonable case against Yongye.

Where this leaves us
Unfortunately, though, when you get right down to it, all today's report really does is lead us in a Fool circle. Once again, we're looking at Yongye as a company that seems incredibly profitable, fast-growing, and now at long last free cash flow-positive -- if you can trust the numbers. And that's perhaps the strangest part of Absaroka's report: According to the analyst, Yongye is a fraud and a "conviction sell." Yet the analyst also says the stock is worth $1.

To which I can only respond: Seriously, Absaroka? You think the stock's a fraud, and managed by black-hearted thieves, but you'd still be comfortable giving some money to them?

Foolish takeaway
To me, that's just plain insane. Really, the investment thesis should go like this: If Yongye's a fraud, you shouldn't buy the stock at any price. Any money you've got earmarked for investment in fertilizer stocks should go to a vetted Western giant like Mosaic or Potash Corp (NYSE: POT) -- at four and six times Yongye's P/E, respectively, and with nowhere near Yongye's growth rate.

On the other hand, the very same allegations Absaroka is leveling at Yongye are the thing that's making the stock so incredibly cheap today. My advice: Buy Yongye if you believe the numbers, run far, far away if you don't.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.