CAPS Rating: 1 out of 5


Player Avatar TSIF (99.96) Submitted: 7/14/2011 6:03:25 PM : Underperform Start Price: $2.68 SKUN Score: +1.29

I'm not really clear why Shenghai Inovations is so neglected by the investment community other than because it's an RTO. (Which might be reason enough, but what I meant was that I can't find any actual accusations against them).

Their auditor appears to be respected and their filings appear timely and I don't see some of the flags that hindsight showed us about other RTO's. They started on the Pink Sheets and did the work required to move to the Nasdaq.

Shengkai dropped from $3.00 to $1.27 in the last six weeks on a steady decline. (High for the year was $8.30), so it apears it was punished into the ground. The last three days saw an 85% rise up to $2.80. There was no news, other than rumors of an investment report from GEO that is suppose to be published "sometime" tonight that would validate Shengkai's operations.

So perhaps Shenghai was "oversold", perhaps they deserved the bump back up from six weeks worth of bleed. Overall, however, while I wish them the best, (yes, even against losses on my call), I can't support this much change in sentiment. Their are now speculators and daytraders who jumped in and longer investors wondering if now is the time to get out and take loses at these levels rather than risk a drop back down to the sub $1.50 range or lower.

Sentiment usually wins after an 80% pop, but the report may actually be real and may help them build a base. I've watched other RTO's attmept to battle back, however, and the efforts usually lose steam. Cash flow is positive, cash in excess of $50 Million, and strong growth forcast. Fairly strong institutional ownership. Reasonable receivables/inventory.

Overall, I might be wrong on this one, but it takes more for an RTO to shine and the moves on this one appear to be unstainable in the short run.

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