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Several weeks ago I presented to you a growth/profit story that was about as attractive as any stock any of us could ever imagine, complete with (legitimate) single-digit P/E ratios and 20% profit margins. Since then, Bohai Pharmaceuticals Group (BOPH) has not only continued to impress, it's gotten even more impressive with today's news. In all seriousness, BOPH is rapidly materializing as the kind of undervalued growth story someone like Warren Buffett would be interested in.
get to today's news below, but here’s a little teaser - a respected
analytical firm thinks Bohai Pharmaceuticals shares could be worth more
than 300% of their current value. Before dissecting the valuation though,
I want to paint a quick picture.
Not that Bohai wasn't on a roll before, but I think the last reported quarter (ending on 9/30, reported in November) was the one that made a definitive statement to the world. It was with that update U.S. investors could start to inspect the year-over-year numbers. Here's what they found:
And to be perfectly clear, the prior quarter wasn't some sort of accounting fluke - Bohai Pharmaceuticals has consistently grown its revenue levels over the last year and a half from the $12 million range to something in the high teens. Net income has similarly trended higher, increasing from $7.9 million for the year ending in the middle of 2009 to $9.5 million for the most recent completed fiscal year. That's a 19.4% improvement.
Said more plainly, Bohai Pharmaceuticals is not just growing, it's reliably growing.
thing is, this is only the beginning.
Bohai has been cultivating this growth on its own, directly taking its traditional Chinese medicine (or TCM) to more and more consumers in this growing market. In fact, the TCM market organically grew at an annual rate of 20% over the last several years, and now makes up more than 1/4 of China's total pharmaceutical market... and that was before the state instituted a sweeping overhaul of China's healthcare system.
In 2009, the People's Republic of China State Council pledged to cover 90% of the nation's population with basic health insurance and access to basic healthcare. Moreover, the council also committed $124 billion toward the effort.
To answer the next question, yes, traditional Chinese medicines are covered and subsidized as part of this plan. [What may be deemed 'alternative medicine' in the United States is quite mainstream in China, and can be just as effective as what Western cultures consider to be mainstream treatments.]
And to answer the follow-up question, yes, Bohai Pharmaceuticals is a direct beneficiary of the country's initiative. Five of Bohai's products are eligible for reimbursement under the national health plan, and the company has the rights to produce twelve more of those reimbursement-eligible products at any time. As of right now, it's got a total of 15 revenue-bearing products.
It doesn't take much to connect the dots here... billions of government dollars supporting the industry, Bohai's own proven organic growth, persistently high margins, and a P/E in the 3.0 area? That's a stunning value, and if the market cap were bigger than about $30 million, it's the kind of business someone like Warren Buffett would be interested in buying.
The market's just simply missing the boat on this one, but let's be honest with ourselves - the market's not going to miss this boat for much longer. The time to wade in is now, before BOPH gets discovered in a big way.
Ever heard of Murphy Analytics? It's a boutique equity research firm that covers a lot of small cap stocks that need closer inspections, but just can't get them from some of the big houses. Murphy does a great job with their work too, getting down to details and perspective you won't find in too many other places.
Yeah, well, Murphy Analytics just updated their view on Bohai Pharmaceuticals Group, and raised its price target to $7.50. That's a mere 314% better than where BOPH shares are trading at now.
I don't disagree one bit with their assessment either.
The full report's available using the link in the press release below. I do want to highlight the rationale for the price target though; I think you'll agree with it too.
Bohai earned $0.15 per share last quarter. It earned $0.61 for the full year. Do the math here. The company's consistently earning about $0.15 per quarter, against the current share price of $1.70. That means the P/E is around 3.0. Even adjusting for a full potential dilution, the company should be clearing at least $0.50 per share per year.
Comparable Chinese companies are trading at 15 times trailing twelve-month earnings. If Bohai Pharmaceuticals makes its way to comparable valuations (15 times $0.50), that would mean a price of $7.50, which is clearly even stronger than my early high-end target of $6.00. Murphy sees it, and I suspect other analysts and investors are also starting to see it.
It's not just a P/E measure that's so attractive here though. How often do you see a stock with a market cap of half its revenue? Even at full dilution, the top line would still be bigger than Bohai's market cap.
Never even mind the fact that this $30 million company's got $31 million in liquid assets, and $50 million more in total assets than total liabilities. The company's could do absolutely nothing at all from this point forward and still be worth more than it is right now.
You get the idea - BOPH is undervalued as is, and could easily justify being priced two to three times where it's trading now. I can't see investors ignoring this one much longer, and when they finally warm up to it, it could be a flash rally. Better to be in front of any move on this value play rather than chasing it from behind.
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