RINO's Stock Price Plunges Into Muddy Waters As Research Report Claims Stock Is Scam
Before CSCO defecated the bed, today's most notable downside mover in the market was RINO International, a relatively recent addition to the US stock market, which in the past 2 years has gone from over $50 to $2, and recently was trading $15.66, until small research company Muddy Waters Research came out with a 30-page brutalizing report this morning, which once it made the rounds, sent the stock into a tailspin, closing down 15%. In a nutshell, Muddy Waters believes the company is a dud, and has initiated the company with a Strong Sell and a $2.45 price target (likely backed by a solid short position, but hey: if they are right, they deserve to make money). And cursory view indicates Muddy may actually be generous in their PT. The research company notes: "[RINO] reported 2009 revenue of $193 million. In reality its revenue is under $15 million, and its management has diverted tens of millions of dollars for its own use. We value RINO based on the cash we believe remains in the company after the most recent raise." After reading the report, we tend to agree that report author Carson Block may be on to something, and that this stock has a very material probability of dropping another 80% over the next several weeks or months as the downside case gathers momentum.
The report's highlights:
- RINO’s FGD sales (60% to 75% of revenue) are much lower than it
claims. We found that many of its customer relationships do not exist.
- Chinese regulatory filings show that RINO’s consolidated 2009
revenue was only $11 million, or 94.2% lower than it reported in the US.
We show that the Chinese numbers are credible.
- RINO’s accounting has serious flaws that are clear signs of cooked books.
- RINO’s management is draining cash from the company for its own
business and personal uses. The management is in flagrant breach of its
VIE agreements, which require it to pay income to RINO (as opposed to
- RINO’s balance sheet has an astonishingly small amount of tangible
assets for a manufacturer. Rather, it is filled with low quality “paper”
assets that balance out the inflated earnings, and likely hide leakage.
- RINO is not the industry leader it claims to be in the steel sinter
FGD system market. Rather, it is an obscure company in a crowded field,
and is best known for its failed projects. Its reported margins are
two to three times what they really are. Its technology is sub-par.
- We are not sanguine about management “borrowing” $3.2 million to
purchase a luxury home in Orange County, CA the day that RINO closed its
$100.0 million financing.
Full report (pdf):
Hopefully unlike the SPY and IWM, this is not a stock that ends up being on the daily HTB list.