CNinsure (CISG) is getting clobbered today. The news is bad, I would sell any shares of CIGS I owned. Here’s why:
- The company has been paying its insurance salesman a portion of their total compensation in shares of another company, Finestart Holdings Limited, which may be a made-up company. I don’t know is Finestart is a legal business, as it is not believed to be registered in China or Hong Kong. Finestart might be a sham, and salesmen are thinking they are getting ownership is something but that something might be nothing.
- So if CISG does away with paying out shares of stock in Finestart, it will likely have to pay more money to salesman, which will hurt future profits and profit margins. CNinsure might have to restate past earnings, as these payouts may have not been accounted for. The chart above is a one-year chart of CISG last quarter, the numbers look good — but are they real?. I doubt I’ll keep CISG on the radar anymore, and probably won’t build new charts this quarter.
- The stock is getting hammered on huge volume – a big sell signal. After opening at $22 the stock is free-falling and is now $16 (dropping $1 since I starting writing this article). Additionally, the stock has had two other days of huge volume selling in the last month as the stock tanked. First on November 4, 2010 and again on November 23, 2010. November 23rd was the day CISG posted last quarter earnings.
Overall this is a dim story. Its a shame too because insurance is a growing industry in China. Its going to take a while for investors to trust CISG again. I would sell any shares I owned.
