LONDON -- The shares of Cupid (LSE:CUP) surged 25 pence, or 50%, to 74 pence during early London trade this morning after the online dating group refuted recent allegations about the company's practices and procedures.
Cupid claimed there had been "a great deal of misrepresentation and ill-informed speculation in the marketplace" and said it was taking legal advice on the matter.
The "ill-informed speculation" kicked off last month following allegations of fake users misleading customers, with bloggers, tipsters, and the Ukrainian press all putting the boot in on Friday to cause the share price to collapse 57%.
Cupid said today that its executive management had conducted an investigation and "concluded that the Company does not employ members of staff to create fake profiles, impersonate users or use any other dubious practice to encourage customers to take out subscriptions or in order to retain existing customers, nor would the Company condone, promote or persuade employees to do so."
Instead, Cupid claimed scammers "can give users the impression they are being 'bombarded' with contact and such poor user experience can influence reputation, churn and user reviews."
The company said it was continuing to invest in "increasingly sophisticated tools and systems" to ensure that its sites are populated with genuine users only.
Cupid also clarified certain related-party transactions and dismissed allegations of profiting from premium-line telephone numbers.
Referring to current trading, Cupid claimed revenues were 20% up on this time last year and that cash in the bank stood at 9 million pounds.
Earlier this month, Cupid's 2012 results showed sales up 51% to 81 million pounds and underlying earnings up 40% to 14 pence per share. The group also raised its dividend by 33% to 3 pence per share.
Cupid made no mention of the allegations within those recent results, although the company did say it would spend an additional 2 million pounds to "develop and enhance the quality of consumer experience."
The shares had started the year at nearly 200 pence, with the price fall and allegations prompting chief executive Bill Dobbie to invest 1 million pounds at 114 pence the other week.
The current price values Cupid at about five times earnings, though whether the stock now represents a value bargain or value trap is something that you must decide for yourself.
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Maynard Paton has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.