Last week, the International Monetary Fund cut back its growth forecast for China, from 8% to 7.45%, and official data from the Chinese government for the first quarter of 2013 pegged growth at 7.7%. Indicators for the rest of the year are carrying a negative sentiment as well, with problems such as income inequality, environmental destruction and an overall need to rebalance the economy. Investors looking to diversify their portfolio by including foreign, specifically Chinese stocks, would do well to look for companies that are expected to outpace the country's economy as a whole.
To create the list below, we began by looking for Chinese stocks demonstrating high growth, with 5-year projected EPS growth above 20%.
We then screened these companies for positive trends in accounts receivable and inventory. Our search returned stocks with faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period, or we found growth in quarterly revenue greater than growth in quarterly inventory.
Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables the healthier the company's total revenue. Additionally, inventory represents the portion of goods not yet sold, and so faster growth in revenue than inventory is considered a positive sign.
We were left with three companies on our list.
For an interactive version of this chart, click on the image below. One year returns sourced from Zacks Investment Research.
Do you see further high growth potential among these Chinese stocks? Use the list below as a starting point for your own analysis.
1. SouFun Holdings Ltd. (SFUN): Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China.
- Market cap at $492.74M, most recent closing price at $26.52
- EPS next 5 years: 23.84%
- Revenue grew by 29.58% during the most recent quarter ($147.54M vs. $113.86M y/y). Accounts receivable grew by -30.07% during the same time period ($38.77M vs. $55.44M y/y).
- Receivables, as a percentage of current assets, decreased from 21.2% to 19.92% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
SFUN has performed in line with the rest of its industry since 5/6/13, returning 3.71% over the last month. This performance has been better than Bitauto Holdings Ltd. (BITA), which returned -11.75%, but worse than industry peers like Sohu.com Inc. (SOHU), Baidu, Inc. (BIDU) and Yahoo! Inc. (YHOO), which returned 18.26%, 9.93% and 4.85% respectively.
The company has reported strong earnings growth over the last year, with EPS growing by 49.91%, higher than competitor SOHU (EPS growth over the last year at -48.32%). But this is still lower than BIDU (EPS growth over the last year at 57.43%) and BITA (EPS growth over the last year at 102.69%).
2. PetroChina Co. Ltd. (PTR): Produces and distributes oil and gas in the People's Republic of China.
- Market cap at $214.81B, most recent closing price at $117.37
- EPS next 5 years: 19.30%
- Materials Revenue grew by 2.78% during the most recent quarter ($540,263M vs. $525,647M y/y). Accounts receivable grew by -1.96% during the same time period ($86,623M vs. $88,355M y/y).
- Receivables, as a percentage of current assets, decreased from 17.96% to 15.85% during the most recent quarter (comparing 3 months ending 2013-03-31 to 3 months ending 2012-03-31).
PTR has returned -5.59% since 5/6/13, and is one of the worst performing stocks in its industry. The stock is falling behind companies like Total SA (TOT) and Chevron Corporation (CVX), which returned 0.66% and 1.50% during the same time period.
PTR has reported weak earnings growth over the last year, with EPS growing by -13.26%. This is in line with many industry peers, such as China Petroleum & Chemical Corp. (SNP) (EPS growth over the last year at -12.85%) and TOT (EPS growth over the last year at -13.26%), but lower than CVX (EPS growth over the last year at -0.89%).
3. China Biologic Products, Inc. (CBPO): Engages in the research, development, manufacturing, and sale of plasma-based pharmaceutical products.
- Market cap at $697.56M, most recent closing price at $25.98
- EPS next 5 years: 30.00%
- Revenue grew by 14.4% during the most recent quarter ($54.03M vs. $47.23M y/y). Inventory grew by 8.76% during the same time period ($76.76M vs. $70.58M y/y).
- Inventory, as a percentage of current assets, decreased from 37.76% to 32.53% during the most recent quarter (comparing 3 months ending 2013-03-31 to 3 months ending 2012-03-31).
CBPO has recorded a solid performance over the last month, returning -0.27% since 5/6/13. This performance has eclipsed the likes of Celgene Corporation (CELG) and Gilead Sciences Inc. (GILD), but have lagged 3SBio Inc. (SSRX) and Momenta Pharmaceuticals Inc. (MNTA), which returned 0.48% and 15.47%, respectively, during the same holding period.
The company has reported strong earnings growth over the last year, with EPS growing by 340.11%, higher than competitors like MNTA (EPS growth over the last year at -132.78%) and Sinovac Biotech Ltd. (SVA) (EPS growth over the last year at 90.35%).
*Accounting data sourced from Google Finance, all other data sourced from Finviz.