Heard Off the Street: Stock garners vitriolic opinions

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The smart money on the Yahoo message board for FAB Universal [ticker: FU] is split on the prospects for the Pittsburgh company formerly known as Wizzard Software.

There are spelling-challenged shortsellers who refuse to believe that nobody beats the whiz. They include someone identified as "kaptnkirk53," who offered this informed opinion on the stock's outlook: "The earnings, pumper articals [sic] are unable to help a dead stock."

The nattering nabobs of negativism are grammatically thwarted by FAB's longs, including a poster identified as "stockgangster" who had this to say about those attempting to tank the stock: "greedy short will learn big way where they are up to."

What hath democratization of the market wrought?

There is no shortage of vitriolic opinion about FAB, which makes it a perfect target for day traders. Take a look at what happened to FAB's shares Wednesday after the company -- which sells and distributes music, video and other digital content through kiosks in major China cities, retail stores and other outlets -- reported third quarter results.

Shares initially jumped on a third quarter profit of $7.3 million and revenue of $29.8 million, trading as high as $7.39. By the end of the day and trading that was three times more active than the average daily volume over the last three months, FAB's shares were fagged. They finished at $5.46, down 45 cents.

FAB shares gyrate so much that it is theoretically possible to make a killing daily if someone knew when each shuck and jive was coming.

The message board is polluted with posters who believe that is exactly what's happening, whether it's shorts releasing false information that causes the stock to nosedive or pump-and-dumpers, who tout the stock to inflate its price, then sell when the suckers rush in.

FAB closed Friday at $5.29, down 46 cents for the week.

A month ago, the New York Stock Exchange asked the company to make a statement about the unusually high volume of trading that had sent its shares as high as $11.48. The company blamed misinformation about the number of shares to be issued to Digital Entertainment International, the Hong Kong company that engineered a reverse merger with Wizzard Software last year and renamed the company FAB. The transaction gave DEI Wizzard's stock exchange listing and transformed the chronically unprofitable Wizzard into a money printing machine.

Among the issues shortsellers cite are Wizzard's troubled past and scandals involving Chinese reverse mergers. Then there's the companies that are paid to tout FAB shares, such as SmallCapTraders.com, which last week reported that it has initiated coverage of the company.

That's not as significant as it may sound. As the announcement -- and a lengthy disclaimer reveals -- SmallCapTraders is paid to distribute press releases for small companies. Its notices are not produced by registered investment advisers and are "not intended to be a recommendation to buy or sell securities," SmallCapTraders said in its statement.

However, FAB has attracted the attention of several certified financial analysts, including Ken Nagy of Zacks Small Cap Research. In a note issued Thursday, he called FAB "a cash generating machine," noting that it generated $15.9 million in operating cash flow in the third quarter, up from $10 million in both the first and second quarters. He has a $10 price target on FAB shares. Analysts from Wells Fargo and Royce & Associates, an investment firm that manages about $38 billion and specializes in small cap stocks, also listened in Wednesday on the company's quarterly call.

FAB added some lustre this year when often-quoted investor Jim Rogers joined its board. Mr. Rogers started the Quantum Fund with George Soros and has made several savvy calls about bank stocks and commodities in recent years. Mr. Nagy has concluded that Mr. Roger's presence on the board legitimizes FAB's business model.

Given the conflicting information about FAB, it is understandable that investors are having a hard time coming to grips with the company. The dilemma was compounded Thursday when Jon Carnes, a shortseller who has critiqued other Chinese companies involved in reverse mergers, alleged that FAB's China business "is a tiny fraction of what it claims in its [Securities and Exchange Commission] filings."

Mr. Carnes made the allegation on Seeking Alpha, an investment website whose content includes blogs. Posting under "Alfred Little," Mr. Carnes said the company has far fewer than the 16,820 kiosks it claims to have in China and that the machines sell pirated U.S. movies. In a phone interview, he said the allegations are based on information his investigators collected by visiting FAB facilities in China. He intends to submit his findings to the SEC and New York Stock Exchange.

Mr. Carnes also acknowledged that he is shorting FAB shares, hoping to profit by their decline.

FAB issued a statement Friday morning denying what it said were Mr. Carnes' "defamatory" and "misleading and inaccurate allegations." The company said it would respond to them shortly.

As if erudite message board investors needed more material for their scholarly discourse.


Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.

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