This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

NQ Mobile (NQ) Addresses "False Allegations", Resumes Trading

Stocks in this article: NQ

Updated to include NQ Mobile's response to Muddy Waters' allegations. 

NEW YORK (TheStreet) -- NQ Mobile  (NQ) resumed trading after management held a conference call to dispute what it calls "false and inaccurate" allegations. Shares of the mobile services provider took a steep dive Thursday on warnings from the short-seller investment firm Muddy Waters Research.

The Chinese-based, U.S.-listed stock crashed 47% to $12.09 on Thursday before trading of shares were halted. Trading resumed just before 2 p.m. EDT and shares continued to fall 12.1% by close and an additional 2.6% in post-market action. 

NQ Mobile called together a conference on Friday morning in an effort to make its financial position transparent. The company said it had commissioned an independent special committee to conduct a review of Muddy Waters' allegations. In the meantime, management issued details of the major term deposits in cash it currently has on hand.  

A day earlier, Muddy Waters initiated a "strong sell" rating, calling the company a "massive fraud". Among the short-seller firm's claims, it alleged NQ had doctored figures pertaining to market share, number of customers and value of assets.

Muddy Waters questions the purported 55% real market share in China, which it says is more realistically around 1.5%, and claims of six million paying users in the country, which it says is more likely less than 250,000. Moreover, the firm alleges NQ's asset values are unsubstantiated and at least 72% of its 2012 China security revenue is "fictitious".

"We believe it is a 'zero'," the company wrote in its research report. "NQ's largest customer by far is really NQ ... NQ cannot monetize users that it does not have."

New York-based law firm Pomerantz Law has launched an independent investigation on behalf of investors in NQ Mobile to ascertain the validity of Muddy Waters' claims.

Before the dive, the stock had gained 278.8% year-to-date, reaching an all-time high of $25.90 a week earlier.

TheStreet Ratings team rates NQ Mobile Inc as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate NQ Mobile Inc (NQ) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • NQ's very impressive revenue growth greatly exceeded the industry average of 5.7%. Since the same quarter one year prior, revenues leaped by 107.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • NQ has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.70, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to its closing price of one year ago, NQ's share price has jumped by 227.61%, exceeding the performance of the broader market during that same time frame. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has decreased by 8.3% when compared to the same quarter one year ago, dropping from $2.08 million to $1.91 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Software industry and the overall market, NQ Mobile Inc's return on equity is significantly below that of the industry average and is below that of the S&P 500.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs