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The China small cap sector is beat up these days surrounded by a ton of controversy. However, it is earnings time for small stocks on a calendar year, and I've been witnessing some pretty darn good moves as companies announce earnings. For the most part, the stocks are so oversold they really have no where to go but up. Some of the moves have held. Others haven't. In either case, there was a profitable trade to be had.
Check out stocks like CMFO, CBEH, and FMCN. All popped on earnings and ended up being nice profit producers for traders with nimble skills.
Today's trading idea is a China based Pharmaceutical manufacturer. I've had some luck with these in the past- BOPH and WKBT were two I covered that both made decent moves. Today's trade target: China Botanic (AMEX: CBP) is a little different. The company has an unusual fiscal year- it ends at the end of October. This morning, pre open, CBP announced FY Q1 numbers, and they were boarderline breathtaking.
The stock has been nearly cut in
half over the past year. Today, the company announced it's full year guidance,
and tomorrow pre open delivers its quarterly numbers. There's a good chance
of a pop in sympathy with the quarterly release, and I wanted to give you
a one day heads up. Once today's edition is deployed, I'll probably take
a trading position for a trade with a tight stop. If it doesn't work at
the get go, I'll be out.
There are a number of smaller China based pharmaceutical manufactures delivering really strong numbers and likely very undervalued. When this sector gets hot, all of the partially submerged ships will rise with the tide. There's also likely to be some consolidation in the sector, so a few of these companies will likely be bought out.
Here's their corporate headquarters, located in the northern part of the country, and employing about 300. These guys are really involved in the use of Ginseng- they put it in lots of stuff both for over-the-counter products, TCM products (Traditional Chinese Medicine), and a host of other applications. They focus on treating anxiety and depression therapies. All told, they have three manufacturing facilities producing over 200 types of nutritional and medicinal products in various forms.
The company boasts 70 sales centers in 24 provinces with more than 3,000 sales agents. Their business is robust and growing. Check out the "audited" numbers for fiscal 2010, which ended at the end of October.
Sales for FY'10 came in at $55.183 million, up 27% from the $43.4 million these guys notched in FY'09. Profits for FY'10 came in at $17.8 million off operations- up from $14.9 million the year before. That's a gain of 28%, which suggests that the company is not sacrificing their margins to fuel their growth.
Earnings per share- the real measure of what you're getting, were $.47 fully diluted in FY'10. That number- $.47 in EPS, would put the stock at $5 to $7 if it were in the US- but, alas, it does trade with the substantial "China Discount".
Tomorrow, before the market opens, CBP will deliver it's FY'11 Q1 numbers, which cover the period from November '10 to January '11. Smart- they will miss the February month in this quarter, traditionally the worst month of the year compliments of Chinese New Years.
I expect the numbers to be strong, and there's a high likelihood for a gap or move up.
CPB the company has announced guidance for FY'11, and it's strong. They expect to generate $71 million in revs, up from $55 million last year (30% above last year), and $23.2 million net, also a 30% bump.
The almighty number of $.62 in EPS- a $6 stock easily in a parallel universe. But, in our universe, where these stocks tend to trade at about 4-6 times trailing, a $3 stock price is easily justified.
That's outstanding results. Looking at the three circles on the chart, you can see this stock has traded up very nicely a few times in the last year. The stock's all time high- $3, was made a year ago right now- guess when- when Q1 numbers came out.
Year end numbers were out about the 1st of the year. The stock made a multi month high at that time, trading up to around $2.75.
When a sector gets decimated- like the China small caps of late, off times sellers have done all their selling, and they have no shares left. In an environment like that, a little bit of buying can go a long ways on price appreciation.
CPB- if you can own it under $2.25, worth a punt. I'm sending this idea out today. The reason- if you like it, you can position today ahead of the earnings release. Then, if there's a gap up, you can swallow the profit. I'll be picking some up today if it's under $2.
Be smart- use your own judgment. There could be a couple of great days ahead for CPB shareholders.