Why NQ Mobile (NQ) Stock Is Plunging Today

NEW YORK (TheStreet) -- NQ Mobile  (NQ) plunged Thursday after the mobile security company issued a statement that it would be unable to file its annual report on Form 20-F on time.

The company said its needs additional time to complete the report. NQ Mobile previously disclosed this information in a press release on April 30 and in its Form 12b-25 filed with the Securities and Exchange Commission.

Short seller Carson Block has accused NQ Mobile of overstating revenue, and investigation results are reportedly expected soon. The law firm Shearman & Sterling LLP and auditor Deloitte & Touche Financial Advisory Services Ltd. are leading the investigation, which should clarify whether Block's assertion that NQ Mobile misrepresented its financials is true.

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The stock was down 27.47% to $7.42 at 10:14 a.m.

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Separately, 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 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.
  • 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 ($1.22 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.
  • Despite currently having a low debt-to-equity ratio of 0.53, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.89 is very high and demonstrates very strong liquidity.
  • You can view the full analysis from the report here: NQ Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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