Is China Agritech A Fraud?

Financial blog ZeroHedge just posted a research report by LM Research claiming fraud in the company of China Agritech Inc (CAGC).

According to the report, China Agritech, a co. that manufactures and sells organic liquid compound fertilizers and related agricultural products in the People’s Republic of China, “is not a currently functioning business that is manufacturing products”. Instead it is, in LM R’s view, “a simple vehicle for transferring shareholder wealth from outside investors into the pockets of the founders and inside management.”

LM Research has set a $2 price target on CAGC shares based on the co.’s cash books – $45.8M – divided by – 20.77M – the number of outstanding shares. LM R also notes in its analysis that since the company has no valuable technology, intellectual property, or capital assets, “there is no value to it other than dissolution value“.

At last check, China Agritech, whose shares have been moving largely lower over the past six months, were down $1.38, or 12.80%, to $9.35.

CAGC currently trades at a trailing P/E of 25.56, a forward P/E of 8.26 and a P/E to Growth ratio of 0.68. The median Wall Street price target on the name is $16.00 with a high target of $20.00.

CAGC’s 52-week change is -31.18%.

Update:

China Agritech just announced that it intends to issue a public statement to address and correct any potentially misleading or inaccurate allegations made in a recent report published by a self-acknowledged short seller in the Company’s stock. This statement will be issued as soon as possible, given the ongoing Chinese New Year holiday. China Agritech’s management team stated that it does not condone such unfounded allegations and stands by the Company’s previous public statements and reports on its business.

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