VanceInfo: A Little-Discussed Chinese Stock with a Bright Future

Founded in 1995, Vanceinfo Technologies, Inc ADS (VIT) is a Beijing, China based provider of outsourced software research and development, maintenance, testing, and IT services. VIT primarily serves corporations in technology, telecommunications, financial services, manufacturing, retail, and distribution industries in the United States, Europe, Japan, and China.

This company is not a stock that I hear too many traders or investors talking about around the internet. While many investors remain focused on the old leaders like Apple (AAPL) and RIMM, I like to look out for the exciting and innovative companies that have the potential to become the next AAPL or RIMM. VIT might or might not be one of those in the future, since no one can predict the future. However, history has proven that stocks with explosive earnings and sales growth go on to normally launch large price gains.

With the best stocks coming from China during this rally, and with the Shanghai Composite leading every other country's stock market for the year, you can be sure your money is better invested in China than it is in the USA. As long as China becomes a more free open market and the USA embraces failed socialist policies, you can be sure smart investors will be eyeing stocks like VIT.

The growth in this company the past eight quarters is nothing short of amazing. EPS the past eight quarters have grown 133%, 100%, 200%, 100%, 43%, 50%, 56%, and 25%. Sales, during this same time, has grown 153%, 123%, 96%, 96%, 63%, 53%, 56%, 47%. 2009 and 2010 annual EPS growth is expected to be 12% and 27% respectively. This is some massive growth that is almost impossible to get in a slowing economy like the U.S.A.

Other amazing fundamental numbers include the company having 0% debt to shareholder equity, an EPS growth rate of 81%, a Return-on-Equity of 15%, and a cash flow of $.57 a share versus $.10 in EPS on the most recent quarter. Numbers like this, no doubt, are why management owns 71% of the shares outstanding.

The remaining shares in the float appear that they are under accumulation (there is no mutual fund ownership data on Daily Graphs for this stock) as the volume in April, May, and June is huge as the stock races up the right side of the price graph. This strong accumulation is confirmed on my charts by the B.O.P. (Balance of Power) indicator at the bottom that measures steady ACC/DIS. The Up/Down volume ratio on IBD is a 2.3, also confirming that it is under some heavy accumulation (anything over 2 is very bullish).

To confirm the strength of this stock to the overall market, I use Investor’s Business Daily. The EPS rating is 99 which is the top 1% of all stocks based on EPS growth, the RS rating is 92, the group RS rating is a mixed 64, the SMR rating is an A, the Acc/Dis rating is an A-, the Composite rating is a 98, the Timeliness rating is a mixed C, and the Earnings Stability rating is a 9 putting it in the top 10% of all stocks based on steadiness of EPS. Clearly, this stock checks-up.

Even though I focus on growth, remember that VIT is not that expensive in regards to its future earnings and the growth that we see in China. The current P/E ratio is 23, which is in the middle of the 9-39 range, so this stock is not expensive or cheap right now. Based on future earnings, it still looks fairly cheap. I guess that is why management owns 71% of the shares outstanding.

While I would love to buy VIT, after a low volume pullback to the 50 day moving average that was followed by a heavier volume bounce/breakout that came with max-green BOP (bottom chart window), I will not deny the strength. If it continues to base and can’t pullback, then I would love to buy it when it crosses that pivot point on strong volume. If it breaks out on weak volume it is probably not going to hold. If it is a heavier volume breakout that comes with max-green BOP then I would go in there and accumulate a decent size.

If the stock would happen to rollover or break down hard on heavy volume then I would look to get out of the position and cut your loss short with a close below the 50 day moving average. The strength and accumulation that is in this stock now is too strong. If this were to fail it is smarter to cut your loss and run. When I go long these stocks I always expect at least a double.

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Disclosure: At the time of publication, Joshua did not have any positions in Vanceinfo Technologies, Inc., Apple Inc., or Research In Motion Ltd.

Comments

[Investing1:]

VIT has now hit my buying requirement in IBD. I will be building a position. Slowly. I built a nice position in FUQI over the past month and that has offered some nice rewards. I have to concur that CHINA is the place for my money and I have a clearer vision after fleeing the Us and its socialist/marxist undertones for the safe shores of Canada with its liberal ore extraction ideals and decreasing corporate tax rates.

Jun 10 12:06 AM