Of the 8 small companies I have on my current menu of ideas, China Energy continues to be the one I believe offers the most upside potential with the least amount of risk. Why- check out today’s earnings release for 2008. Here are their achievements:

• Revenues up a mere 95.6% - $23.18 million in 2008 up from $11.85 million in 2007
• Gross profit increased to $5.07 million, a 138.2% increase from $2.13 million in 2007
• Gross profit margins improved to 21.9%, as compared to 18.0% in 2007
• Profits increased by 110.6% to $1.61 million in 2008 from $0.76 million in 2007
• Without the aforementioned non-cash expenses of $0.72 million, net income would have been $1.83 million, an increase of 185.9% over that of 2007.

Total shareholders’ equity improved to $7,623,445, up from a negative $213,989 in 2007
EPS came in a $.041. Without the one time, non cash pub co expenses, EPS would have been about $.086 per share

Ok- anyone you spin this, these are simply great numbers. When analysts finally catch on to this company, they will love the increase in gross margins. So, not only are their sales numbers rising quite dramatically, the percentage of gross profits CGYV enjoys from the sales is going up as well. This means the company will be able to generate higher profits on the same revenues.

Now, let’s look at the 4th quarter to help us figure out what’s going to happen in 2009. CGYV delivered $7.2 million in Q4, which suggest they are
on an annual revenue run rate of $28 million.

CGYV delivered $6.1 million in Q3- quarter over quarter growth was 18%. If they can keep up at that clip, let’s look at ‘09 numbers. CGYV should deliver $8.4 million in Q1, $9.9 million in Q2, 11.66 million in Q3, and 13.76 million in Q4.

CGYV could deliver $43.72 million in revs in 2009- another whopping increase of 88%. If gross margins stay the same, gross profits would come in at $9.6 million. Margins will increase as it won’t cost them any more money to be a public company. In fact, a bunch of one time, non cash expenses would no longer apply- I’d look for about $5 million in net profits, or $.17 in EPS.

If you still like the good old fashioned idea of PE ratios, in any normal market environment a company with a growth rate of 80% should trade at a minimum 40 times earnings.

So, if all this forecasting comes to pass, 40 times .17 would give us a stock price of $6.80.

All this perfect math can give you a guideline, but it rarely follows the play book. They are upside surprises and disappointments along the way. Nevertheless, the numbers are the numbers, and based on the numbers there is no recession going on at China Energy Recovery.

In fact, there is an enormous amount of chatter in the media about the $680 billion China stimulus plan, and a lot of chatter about a substantial amount of those funds going towards energy efficiency and cleaning up the environment.

Manufacturing is down in China in 2009, but what’s being done is going to the most efficient factories. Therefore, in order to compete, these factories need to retool, and what better way than with government subsidy money.

The chart is that of a stock just looking to break out on some sort of volume increase. I don’t know when that’s going to come. The volume has dried up, and there’s virtually no downside pressure at these levels. This stock is easy to hold when one simply looks at the corporate performance. Sooner or later the buyers will come, and this stock will be ready to surge.

It’s simply a no brainer. Sometime this year China Energy will go nuts, and I hope you are along for the ride.