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Orient Paper: Not a Short Squeeze, Yet

Stocks in this article: ONPRINO

I want to get a larger position before the short squeeze happens, so I am buying with a sense of urgency. Keep in mind that right when the Muddy Waters report was released, the stock had been driven down to $8 (presumably by shorts). So the largest short positions may have begun $9 and are not yet feeling true pain.

With the stock at over $7, many people have asked if it is too late to buy ONP. I am still buying because I think it is highly likely that there is 40%-50% upside in the very near term from the current price of only $7.11.

A few things to keep in mind regarding the price:

  • Prior to the short attack, the stock consistently traded in the $8-$11 range
  • As recently as Nov. 9, the stock hit a high of $7.77 -- even with no news of the report
  • ONP's high for the year was $15.15
  • ONP has a current market cap of only $130 million -- this compares to Rino which has a market cap of over $170 million
  • Roth Capital previously had a target on the stock of $16 As for Roth, I think it is notable that they never switched to a sell recommendation or lowered their price target. As with most institutions, I assume that they are simply waiting for the release of the final report to reinstate coverage. This strikes me as a very appropriate institutional approach given the amount of controversy and uncertainty generated by short sellers. Once Roth reinstates coverage, I think it could provide a significant boost to the stock.

    Other high profile situations which currently have litigation pending include Fuqi International (FUQI), China Northeast Petroleum (NEP), China Green Agriculture (CGA), China Natural Gas (CHNG), China Biotics (CHBT) as well as accounting questions on China Agritech (CAGC). Once I get the chance, I expect to do some follow-up on them as well.

    Disclosure: The author holds a long position in ONP.

    The author can be reached at comments@pearsoninvestment.com.

    This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

    Rick Pearson is a Beijing-based private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.

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