To OTC Journal Members: 
 

Quarterly Numbers From China For XSEL, UTA, and CGYV: Up, Down, and Sideways

Since yesterday's new idea introduction, there have been three significant earnings releases and the results provide us with the full package of responses- up, down, and sideways. Here's the reviews in no particular order:
 

Xinhua Sports and Media: Top Line Home Run

XSEL, the new idea I published yesterday, issued its quarterly earnings report after the bell. I warned everyone I had no idea which way the stock would head after the announcement. I also warned everyone I had no idea what the market's expectations were.

The company delivered an extraordinary report in my view, and the stock has sold off a bit on the news. This is a classic buy on mystery, sell on history event. Over the years I can't tell you how many times I have seen stocks run up into an earnings report, only to sell off once the news comes out.

Here's the highlights: XSEL announced it delivered revenues of $38.8 million for the quarter, and they booked an EBITDA profit of $5.7 million. Not bad. That's a measure of how the business was really functioning. GAAP accounting took the profit level down to $2.9 million from operations, and after subtracting all the write downs associated with all their divestitures, the company ended up booking a small loss.

Cash, restricted cash, and receivables came in at over $120 million, and the company reported $236 million in shareholder equity. I make that a book value of more than $3 per share.

Going back to the forecast challenges with this idea- here's what's really of interest. $38.8 million, when compared to last quarter's revenues of $25 million, represents a 55% increase. In ninety days, that's just phenomenal.

As compared to the same quarter last year revenues were down 18%. However, you must remember the company has divested some large divisions to focus on becoming the ESPN of China. 

In short, the ESPN of China is simply kicking butt. When you filter all the noise of a complex financial statement with lots of non cash charges, you really have a company that probably made $5 million on its $38 million in revenues.

There's only 76 million I&O- today's price is $1.60- that's a $121 million market value. This company is hands down going to be worth $1/2 billion over the coming months, which suggests a $5 stock plus.

Technically, this was pretty simple. The stock ran up huge into the earnings report, and has now corrected. Classic. Great entry level. $1.54 was a perfect Fib .382 retracement.

This stock is likely to bounce now, and any major content news could send it charging back up. A break through $1.90 brings $2.80 into the picture on its way to $5 over the coming months.
 

Universal Travel (AMEX: UTA)- Doesn't Disappoint- Stock Higher

Here's one where the earnings report sent the stock higher. Universal Travel (AMEX: UTA) is simply ringing the cash register profit bell. I believe the stock is going to achieve my $20 price target before year's end, and no one who acted when I published this idea at $8 back in June should be disappointed.

I don't need to spend a lot of time on this one- earnings were $.23 per share up from $.17 last same quarter last year on $18.4 million in revenues (up 55%). 

In this past quarter the stock was also added to the Russell 3000, and Russell Global and Microcap Indexes. 

Universal Travel (UTA) is both a traditional and electronic travel agency in China, and growth is being fueled by both domestic demand, expansion into other geographic regions, and into other customer service platforms. They've added a kiosk program that is just starting to contribute revenues and profits.

The company has a low overhead model, which allows them to be so profitable, and is expanding into the Chongqing Delta region, which includes the city of Chengdu, and has a population of 32 million.

The company has publicly stated it expects to earn between $1.10 and $1.25 this year. The real number is likely to be higher, as no company will publish numbers it doesn't know it can achieve.

In my experience, companies that generate over $1 in EPS with 50% growth rates trades at $20 plus. That's it. 
 

China Energy Recovery (OTC BB: CGYV): Not Recovering Fast Enough

CGYV released its numbers post close yesterday, and the associated press release today. The numbers demonstrate the company is back on track to their old winning ways, but are they back on track enough?

That first quarter was a killer. Their business simply fell off a cliff for 90 days, as did so many others. Since it was such a crazy time, let's simply throw it out. 

If you take the abominable Q1 out of the picture, the growth rate still doesn't measure up as compared to the past 3 years. In '06, '07, and '08, CGYV achieved $5 million, $13 million, and $23 million respectively. Nearly double every year.

The company generated $7.6 million in revenues, up 34% over the same quarter in '08. If this were a Western company mired in our recession, that would be a fantastic result. Relative to their past history of nearly doubling in size every year, it seems a bit anemic. CGYV is a victim of its own high growth standard.

Back on April 28th, CGYV disclosed it had a back log of $32.7 million in projects to be completed over the next year. This forecast was not included in today's release, nor was there any commentary on the future.

Here's one more issue that bears some clarification. Recall the $5 million financing- convertible debt with a conversion price of $1.80. According to the SEC filings, that debt was earmarked for expansion- to build a new facility. According to this filing, the company has not drawn down one penny on the debt, and there's no evidence of it on the liability side of the balance sheet. Is it possible the expansion plans are derailed by a lack of new contracts? I don't know, but its certainly possible.

If the company had delivered north of $10 million this quarter, I would have been willing to assume they were back on track for another great growth year and be looking for a $4 to $5 stock. They didn't, which suggests they could be on track to deliver a 30% growth rate from here forward.

I'd like to see evidence of an accelerating top line for the back half of the year. There's been no retraction of the previous forecast, so it could happen.

Based on this quarter's number, which included $.03 in EPS, and a higher number in positive cash flow, I feel the upside in CGYV is now in the $2 to $2.25 range before I would view it as fully valued. If they earn $.12 with a 30% growth rate, it's a much lower valuation than earning $.12 with a 100% growth rate.

The chart indicates that there's probably very little supply around. It has bottomed and is very slowly rounding up. There also isn't a lot of buy side pressure on the stock, so it's kind of drifting up on light volume. Today's earnings release didn't stimulate volume, but future news might.

I own an awful lot of this stock. Probably a disproportionate amount to my entire portfolio. In the interest of full disclosure, I'll tell you I plan to liquidate some in very small amounts very slowly over time. I'd like to diversify.

I still believe there is a lot of upside here, but I'd like to see the growth rate restored before buying into a double or triple from these levels. The company is back on track, but is it enough? We'll see.

Some big contract announcements and/or a reconfirmation of the May forecast would be helpful. The Q1 hangover is not gone yet, but with the right news it might pass.

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