BEST, ONP and SNOFF: The Good, the Bad and the Ugly of Chinese Reverse Merger Stocks (DEER, EVK, QKLS)

Yesterday, I wrote about Deer Consumer Products (NASDAQ: DEER), Ever-Glory International Group (AMEX: EVK) and QKL Stores (NASDAQ: QKLS), three Chinese consumer or retail stocks that debuted on US exchanges via the less stringent reverse merger process while today I wanted to mention Shiner International (NASDAQ: BEST), Orient Paper (AMEX: ONP) and Sino-Forest Corp. (SNOFF) - three Chinese packaging or forestry reverse merger stocks that could also be described as the good, the bad and the ugly of Chinese reverse merger stocks. As I have previously mentioned, there is nothing wrong with obtaining a stock market listing via a reverse merger but a number of Chinese reverse merger stocks (including ONP and SNOFF) have been accused of outright financial fraud while others have become the target of short-sellers just because they are Chinese reverse merger stocks. This means that even Chinese reverse merger stocks that are legit can see their share prices sink at the mere whiff of an allegation. Hence, here is a closer look at BEST, ONP and SNOFF to help you decide if any of these Chinese reverse merger stocks are worth a closer look:

Shiner International (NASDAQ: BEST) Reported a Strong First Quarter

Shiner International makes packaging and anti-counterfeit plastic film in China. On Monday, Shiner International announced that it has signed a sales order with Want Want China Holdings Limited (WWNTF) for $2 million worth of color printing services. Nevertheless, Shiner International still fell 6.82% to $0.82 and has a 52 week trading range of $0.78 to $1.69 a share. Investors should note that Shiner International a reported 1Q2011 revenue increase of 37.3% to $15.9 million thanks to an increase in domestic product volume plus an improvement in their sales prices. Moreover, I am not seeing any recent accusations against Shiner International from the usual sources.

Orient Paper (AMEX: ONP) Has Been Hit by Fraud Accusations… But Remains Standing…

Orient Paper is a producer and distributor of various types of paper products in China. Orient Paper will report audited results on August 9, 2011 but last Thursday the company announced unaudited results that showed that 2Q2011 revenue increased 8.6% from $38.3 million to $41.5 million while unaudited net income rose 9.5% from $5.4 million to $5.9 million. On Friday, Orient Paper briefly spiked from $3.88 to $4.04 before drifting lower while on Monday, shares fell 1.83% to $3.76 (ONP has a 52 week trading range of $3.18 to $8.09 a share). However, investors should note that Orient Paper has been hit with fraud accusations but thus far, no smoking gun has been found to prove them. Since ONP has not collapsed like other Chinese small caps hit with such accusations, it appears that investors are betting against the short sellers and the accusers – who are probably one in the same.

Sino-Forest Corp. (SNOFF) Is One of the More Notorious Chinese Reverse Merger Stocks and is Now A Speculative Play

Sino-Forest Corp. is a Chinese forestry company that became a poster child for alleged bad behavior among Chinese reverse merger stocks. Two months ago when Muddy Waters, a short selling firm, alleged that Sino-Forest Corp. was a fraud worth less than $1, shares sank from $20 to $2. Moreover, hedge fund manager John Paulson ended up selling his stake in Sino-Forest Corp. for a massive loss around the time the report was issued – which only seemed to further validate matters. However and on Monday, Sino-Forest Corp. rose 1.31% to $7.75 and the stock has a 52 week trading range of $1.38 to $26.64 a share. It appears that the smart money crowd is once again buying shares of Sino-Forest Corp. – encouraging other investors to doo the same. Hence, Sino-Forest Corp. remains a highly speculative play for both regular investors and short sellers alike.

The Bottom Line. BEST, ONP and SNOFF provide a good sampling of what risks investors face when investing in Chinese reverse merger stocks.