March 17, 2010 (Chinavestor) When a small cap Chinese ADR restates earnings and not just one but three of them, investors get nervous. So the -36% drop in the share price of Fuqi International (NASDAQ:FUQI) today is not out of proportion - at least for the first sight. We all remember to the similar effect that devastated the stock price of 51job Inc. (NASDAQ:JOBS) back in December 2004 - the stock has never regained her former glory.
But the analogy stops here. Investors over reacted as the following chart suggests. Fuqi International(NASDAQ:FUQI) has been delivering a relatively constant revenue and earnings growth, something all investors are vying for. The restatement to the magnitude of $.15 - $.19 a share for the last three quarters combined comes out to $-.06 drop a quarter. See chart below.
The restatement of earnings is more of a psychological damage than material. The -36% drop a day looks excessive from a rational point of view. Expect a handsome bounce back off tomorrow...
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