June 17, 2011 / 12:25 PM / 7 years ago

RPT-INSIDER-China's Deer Products deserves closer scrutiny

NEW YORK, June 16 (Reuters) - China-based Deer Consumer Products DEER.O has lower earnings quality than almost 90 percent of its global peers, according to StarMine data.

Deer is one of many U.S.-listed stocks from China that have taken a hit recently on concerns about accounting standards.

Deer scores 11 out of a possible 100 based on StarMine’s earnings quality ranking, according to Reuters Insider quantitative analyst Mike Tarsala and Tim Gaumer, analyst with Thomson Reuters Investment and Advisory.

That analysis takes into account the level of accruals relative to revenue and other metrics, cash flows backing earnings, as well as operating efficiency.

Emerging markets stocks with earnings scores of 10 or below underperformed those with scores above 90 by 15.5 percent on an annualized basis, based on a 10-year back test, according to StarMine.

Deer could not be reached for comment on the analysis.

Deer’s cash-from-operations growth has lagged net income in each of the past seven quarters, according to StarMine data, reflecting that less of the company’s earnings are coming from cash sources.

Deer’s inventory accruals rose faster than revenue in its most recent quarter. On average, companies with rising accruals tend to underperform other stocks, according to Thomson Reuters research.

To watch the analysis in full, click on link.reuters.com/nyv22s (Reporting by Mike Tarsala)

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