NEW YORK (TheStreet) -- Shares of Chinese online sports-lottery company 500.com (WBAI) - Get Report closed down 9.76% to $10.63 on Monday as alleged corruption rumors continued to swirl around the company.
Adam Gefvert, head analyst at White Diamond Research, tweeted Monday that there is "major corruption going on there" and the Chinese government is "cracking down on it."
The company has had issues with sales suspensions since late February.
500.com announced earlier this month that "the remaining provincial sports lottery administration centers to which the company provides sport lottery sales services that such provincial sports lottery administration centers also plan to temporarily suspend accepting online purchase orders for lottery products."
Furthermore, the company said at that time that it planned during the suspension period "to continue processing online orders for lottery products that are distributed by local lottery stations and represented by paper lottery tickets." Therefore, 500.com expected transaction volume to decline sharply, which would likely "materially and adversely" affect the company's financial results during the temporary suspension period.
In late February, 500.com announced some sales suspensions that came as a response to the Ministry of Finance, Ministry of Civil Affairs, and General Administration of Sports of the People's Republic of China's notice on "issues related to self-inspection and self-remedy of unauthorized online lottery sales" issued on January 15.
Separately, TheStreet Ratings team rates 500.COM LTD -ADR as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate 500.COM LTD -ADR (WBAI) a SELL. This is driven by a few notable weaknesses, 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 unimpressive growth in net income and generally disappointing historical performance in the stock itself."
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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 83.9% when compared to the same quarter one year ago, falling from $14.15 million to $2.28 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 67.01%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 86.66% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The gross profit margin for 500.COM LTD -ADR is currently very high, coming in at 89.89%. Regardless of WBAI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.80% trails the industry average.
- In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, 500.COM LTD -ADR's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- 500.COM LTD -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. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, 500.COM LTD -ADR increased its bottom line by earning $0.70 versus $0.51 in the prior year. This year, the market expects an improvement in earnings ($1.11 versus $0.70).
- You can view the full analysis from the report here: WBAI Ratings Report