NEW YORK (TheStreet) -- NQ Mobile (NQ - Get Report) shares are up 2.8% to $4.69 on Monday, rebounding from the drop it experienced Thursday after the firm responded to charges from analysts at Muddy Waters accusing the company of illegally selling off shares before its audit announcement last week
The company's shares fell -33% on Thursday after it announced that an independent auditor was expanding the scope of its 2013 inquiry and needed to perform additional procedures.
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Analysts at Muddy Waters had this to say following the announcement, "NQ's July 3rd announcement vindicates short sellers, but was likely delayed in order to give China side insiders a chance to illegally dump stock. The announcement also puts lipstick on the state of NQ's doomed audit."
The Chinese mobile internet service provider responded to those charges today saying, "The company completed an exhaustive and broad-based independent investigation led by senior partners in the U.S. by the reputable and global law firm of Shearman & Sterling... the summary findings are detailed in their press release dated June 4, 2014. The allegations of fraud and wrongdoing were invalidated. The cash was explicitly verified. The revenues were examined and found consistent with reported results and filings. The partnerships and business relationships were verified."
TheStreet Ratings team rates NQ MOBILE INC -ADR as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate NQ MOBILE INC -ADR (NQ) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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 significantly decreased by 206.8% when compared to the same quarter one year ago, falling from $4.87 million to -$5.20 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, NQ MOBILE INC -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
- The share price of NQ MOBILE INC -ADR has not done very well: it is down 22.92% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- NQ MOBILE INC -ADR has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, NQ MOBILE INC -ADR swung to a loss, reporting -$0.06 versus $0.18 in the prior year. This year, the market expects an improvement in earnings ($1.25 versus -$0.06).
- The gross profit margin for NQ MOBILE INC -ADR is rather high; currently it is at 51.61%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, NQ's net profit margin of -7.66% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: NQ Ratings Report