When you step back and think about it, it's a sad day when naked shorters, propagandists, and manipulators can stand a valuable company on its head and force it into either making proclamations about its value or taking itself private.
There seems to be very little short interest in the stock and those short seem to be easily covering without pushing the stock higher. I think there just aren’t any buyers that are willing to take the risk at this point.
I read today's letter. I also read the extremely detailed correspondence that the company had with the SEC throughout 2010 and into 2011, which is completely consistent with the letter. However, in the time I took to do that DD, the shares dropped from $4.00 to $2.00 on a cumulative volume that now approximates a complete turnover of the entire @20M reported float. The letter doesn't explain or address that; I suppose it's good that they don't blame shorts but it's also a missed opportunity that they don't reveal insider transactions and holdings.
I don't know what to make of it. Of course I am familiar with the whole Chinese RTO issue and I am aware of some companies that have defended themselves in the same manner that KGJI attempts to do here. I also know that KGJI's first U.S. director resigned in January because he felt that the $3.19 pricing of the recent equity rise was too low, but I understood that even then $3.19 was a P/E premium to similar stocks (despite the fact that KGJI was trading at twice that at the time). It is disconcerting that the letter places such emphasis on Dr. Orza's replacement without knowing if he will survive longer than his predecessor's 13 months.
I am most concerned that KGJI maybe was rejected from listing on the Shenzhen exchange in 2008, perhaps due to questions over unbelievable YOY revenue increases. However, the business always seemed to be pretty straightforward (as explained again in today's letter), and I take cautious comfort in the statement that "tax records in China are transparent and match the numbers reported in the United States." That also helps my little worry about the VIE structure, especially since I already understand and accept the rationale behind these common, though troubling, arrangements.
And of course there is the overall narrative, and the alignment with Chinese government policies, and the growing alliances with Chinese banks, that all are very difficult to resist. But even if the decision has been made to catch the falling knife, without knowing where the selling is coming from it is difficult to determine when to do so. The $2.00 floor has not been in place quite as long as the $2.80, so it may be premature to think that will hold when no other has. The dip to $1.80 still looks tempting and like a warning, since there have been many similar dips before.
I started accumlating the shares since last earning report. My average price is pretty low, so I can still hold on to it. I think they raised 10 million dollars at $3.19 a short time ago. $2.00 should be a good deal.