DEER, EVK and QKLS: Three Chinese Consumer or Retail Reverse Merger Stocks (CHNG, NEP, GURE)

Yesterday, I wrote about China Natural Gas (NASDAQ: CHNG), China North East Petroleum Holding (AMEX: NEP) and Gulf Resources (NASDAQ: GURE) - three Chinese energy stocks that debuted on US exchanges via the less stringent reverse merger process (and have been hit with various accusations) while today I wanted to mention Deer Consumer Products (NASDAQ: DEER), Ever-Glory International Group (AMEX: EVK) and QKL Stores (NASDAQ: QKLS) - three Chinese consumer orientated or retail 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 have been accused of outright financial fraud while others have become the target of short-sellers. This means that even Chinese reverse merger stocks that are legit can see their share prices sink at the mere whiff of an allegation. Nevertheless and despite being reverse merger stocks, DEER, EVK and QKLS operate in the world’s biggest consumer market place by population. Hence, here is a closer look at all three to help you decide if any of these Chinese reverse merger stocks are worth a closer look:

Deer Consumer Products (NASDAQ: DEER) Has Fought Back Against the Short Sellers By Filing a Defamation Suit

Deer Consumer Products designs, manufactures and sells small home and kitchen electric appliances targeted towards China’s growing middle class plus the company makes products on behalf of Black & Decker, Betty Crocker Kitchens and private label programs. Back in June, Deer Consumer Products along with Sino Clean Energy (NASDAQ: SCEI) filed defamation lawsuits against a blogger who uses the pseudonym "Alfred Little" (as well as against the sites that publish his blog) in what has been regarded as the most concerted effort by Chinese stocks to fight back against short sellers and accusations of wrong doing. Specifically, the blogger alleged back in March that that DEER had inflated sales and margins and had also overpaid for property purchases in order to benefit executives. After the blogger’s “report” was issued, DEER fell 41%. On Friday, Deer Consumer Products fell 3.24% to $6.57 and the stock has a 52 week trading range of $4.88 to $13 a share. Nevertheless and regardless of whether the accusations against Deer Consumer Products are true or not, lawsuits against short sellers tend to be rare, are difficult to win and can also backfire on those who file them.

Ever-Glory International Group (AMEX: EVK) Saw a Big Sales Increase

Ever-Glory International Group is a supply chain manager and retailer in China. For 1Q2011, Ever-Glory International Group’s reported that net sales increased 103.6% from $26.1 million for 1Q2010 to $53.2 million thanks to increased sales at the company’s retail and wholesale businesses in China. EVK’s net income also increased 65.8% from $1.6 million to $2.6 million. On Friday, Ever-Glory International Group fell 1.55% to $1.90 and has a 52 week trading range of $1.59 to $3.05 a share. Investors should note that back in January 2010, Ever-Glory International Group restated its financial statements for the periods ended March 31, 2009, June 30, 2009 and September 30 2009 because they did not properly calculate the derivative effect of certain warrants that had been issued in connection with a 2007 private placement.

QKL Stores (NASDAQ: QKLS) Saw the Departure of its Westerner COO Recently

QKL Stores is a regional supermarket chain that operates supermarkets, hypermarkets and department stores in northeastern China and Inner Mongolia. Back in June, QKL Stores announced the voluntary departure fits COO, a westerner. These resignation triggered both a sell off and a surge at the $1.50 level but it does not appear that the resignation was triggered by something internal at the company. On Friday, QKL Stores fell 0.59% to $1.71 and has a 52 week trading range of $1.07 to $6.36 a share. It should be noted that QKLS’s shares have steadily fallen since November of last year. Nevertheless and for 1Q2011, QKL Stores saw revenue increase 24.1% from $81.6 million for 1Q2010 to $101.3 million but net income fell from $11.9 million to approximately $2.6 million.

The Bottom Line. DEER, EVK and QKLS could all be great options for profiting off the rise of Chinese consumers plus DEER's attempt to fight back against a mysterious short seller can also be considered reassuring.