I’m not an expert investor or trader by any standard. That said, I would like to share some thoughts about GURE. I have been following the Chinese small caps for 4 years. Many of the former high fliers are now trading at a significant discount, considering reported earnings. Part of this is due to suspicion that a lot of the companies are not legit of fully legit. Indeed, quite a few companies have been shown to be frauds. The other reason for such low stock prices is that the Chinese economy has slowed considerably and these companies are not making the profits they did in the past. I have read posts that GURE will be delisted from the NASDAQ when the stock price goes below $1. The process is not that simple. The price has to be below $1 for 30 consecutive days and then the company will have 6 months to correct this problem. The company can be given an additional 6 month period under certain conditions. There was a post that indicated that GURE management wants the stock to be delisted so that the company can be bought back by management cheaply. If this is the case, the quickest way to get the stock halted and delisted is not to file the required SEC reports. GURE has been very timely with filing reports. It is interesting that GURE is listed on the NASDAQ Global Select market. The NASDAQ GS market claims to be the market with “the highest listing standards in the world.” It seems that the NASDAQ has some level of confidence that GURE is legit. Somebody wrote that the stock is dead in the water unless some big organization like a hedge fund buys it. I disagree. IMHO, the stock price will move up significantly when the Chinese economy heats up again and the price of bromine jumps. There are a lot of traders who will want to catch the wave, despite the risks. Chinese small caps will get hot again, although they may never reach their former lofty levels. At $1, it would not take much for a small cap like GURE to triple or better.
The following is one of the risk factor that is posted along with the 10K report on LIWA. This is the first time I saw it posted as RISK to the company, that really HIGHTLIGHT the negativeness that affects this sector last year. A lot of institutions had pull their investment out of this sector on the 2nd part of last year becuase of this and also because of the slow down in China last year played a part:
The audit report included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board (United States) (“the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.
Because we have substantial operations within the Peoples' Republic of China and the PCAOB is currently unable to conduct inspections of the work of our auditors as it relates to those operations without the approval of the Chinese authorities, our auditors are not currently inspected fully by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
Yes this is a serious issue and it is good that they included it in their risks, PCAOB has started making small steps as they have now been authorized to observe some audit activities in China but not as a full reviewer, just as an observer. This is a small step in the right direction but more needs to happen to have this risk eliminated and it will take time. The new team in power in China seems to be driving towards more openness/transparency of the Financial markets and financial activities, they should be more opened to drive towards a resolution of the issues with PCAOB and with the SEC.
For Gure, it would be nice if they would be allowed to have a 3rd party verifying their SAIC filing and comparing them to their SEC filings as this is one of the argument plaintiffs have been using in their lawsuit, they presented evidences that the filings were not consistent and when Gure presented their own documents showing that the filing were consistent, the judge rejected them as they could not be verified by an independent 3rd party in the US. BTW SAIC and SEC filings will differ as you have different accounting rules for both filings but there should be over time the possibility of reconciling the differences. So now it is just the plaintiffs saying it is not consistent against Gure's Management saying it is, my feeling is that this could stay in court for years until such 3rd party verification is approved...
The only hope is that the lawyers of the plaintiffs that are only paid if they get some money from GURE will drive their clients to settle for a reasonable price instead of having to spend years in court with the possibility that they do not get anything at the end if Gure is right and can prove it when the verification process is in place.
It seems to me the biggest dark cloud hanging on US listed Chinese RTO is the Chinese auditor oversight issue have not been resolved that is resulting in the distrust of the US market. I own a few shares of GURE and has been active on LIWA board. So long as the perception of financial statement cannot be be trusted on these foreign stock, US market is very reluctant to give any kind of PE multiple on these companies regardless of their earning report. LIWA year yar record revenue of $854MM earns $1.93 EPS, BV of $9.30 with higher than 10% YOY growth earns a PE of 2.5. Without record setting earning report, US market will tank these stocks with impunity. Until the issue is settled, only the Blue Chips from China can maintain some stock price staability. Other than JOBS, NQ, XIN, WX, VIPS & CBPO, majority of the Chinese stocks are still in their penalty box.
I agree that accounting concerns about these Chinese small caps will keep their stock prices depressed for the forseeable future. I don't think GURE will be back to $10 anytime soon, but I think it can get back to the $3-$4 range when the Chinese economy heats up and earnings improve. Traders looking for fast money can drive up the price of a small cap stock very quickly.