China Green Agriculture Inc (NYSE:CGA)
- Price (Apr 7, 2009): $3.55
- Trailing P/E (tax adjusted): 9.10
- Fiscal Year Ends In June
**12 Months trailing EPS (tax adjusted ): $0.39
**Published analyst estimates for 2010 (tax adjusted): $0.71
Description: Produces and distributes humic acid based liquid compound fertilizer. All of company’s fertilizer products are certified by the PRC government as green products and suitable for growing Grade AA 'green' foods
Reasons for optimism:
1. The company meets nine out of ten GeoBargain categories:
Recent 52-week high
The stock has recently attained a new 52-week high.
30% EPS growth rate
Earnings per share (EPS) growth rate should generally be a minimum of 30% and increasing year over year.
10% revenue growth
The company has the ability to grow revenues by at least 10% year over year.
Strong balance sheet
The company has strong a balance sheet.
Return on Equity (ROE) is at least 15%.
8% pre-tax margins
The company is seeking profit margin improvements to ultimately achieve minimum pretax operating margins of 8%.
Under 50m shares
The company should generally have fewer than 50 million shares outstanding, but exceptions to this rule are routinely made.
High insider ownership
There is high insider ownership of this stock.
Limited institutional ownership
There is limited institutional ownership of this stock.
P/E at least 1/2 of EPS growth rate
The company's price-to-earnings ratio (P/E) should be least half of its earnings per share (EPS) growth rate.
2. The company operates in an industry with favorable growth trends of over 30%.
3. The company has a diversified customer base.
4. Opportunities to capture market share are attractive, as the company holds less than a 5% market share position.
5. The company may be recession resistant. A significant amount of the company’s products are marketed to farmers whose end market is food products for the consumer
Potential valuation scenarios if the company can achieve its EPS growth goals.
Potential value based on fully taxed adjusted trailing EPS
- P/E 15* $0.39= $5.85
- P/E 20* $0.39= $7.80
- P/E 25* $0.39= $9.75
Potential value based on fully taxed adjusted 2010 EPS published analyst estimates
- P/E 10* $0.71 = $7.10
- P/E 15* $0.71 = $10.65
** All EPS numbers have been adjusted by the GeoTeam to reflect a United States standard tax rate.
The GeoTeam will provide a follow-up discussion in the near future.
Disclosure: Long CGA.