AsiaInfo-Linkage , a Chinese telecommunication software company. “It's been a weak stock with relative strength of just 3. So, it would probably be down more if the market were a little more conducive to shorting over the last seven months.
China is either the greatest growth story ever or the biggest Ponzi scheme. ASIA has been generating a significant amount of growth from unbilled accounts receivables, which is based on an estimate by management. They can also overstate the margin.
When gross margin was going up you could tell Wall Street analysts couldn't figure it out, but it was a good thing, right? Not really—since it was all a mirage. The company has bombed twice now since then, margins have been hammered, but the growth is still vulnerable as they stole a lot from the future.”
Bally Technologies , which makes slot machines—a longtime bull/bear tug-of-war stock. “Customer deposits are falling, new projects stalling, deferred revenue falling with the new deal pipeline slowing, receivable days sales outstanding are up. They missed last quarter and back loaded their year.
I love those stories because it seems like the growth never quite comes back in the second half of the year. We think with the days sales that the extended payment terms are causing the company to have trouble finding new sources of revenue to fill the gap they created."
The portfolio includes other names that aren’t strangers to regular readers, including Salesforce.com and Green Mountain Coffee.
My take: Shorts aren’t always right, but they raise red flags—ambitious and aggressive revenue recognition, among them. Never thought I’d live to see the day a short-only fund would bear its portfolio—daily! Must have thick skin.
Questions? Comments? Write to HerbOnTheStreet@cnbc.com
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