China Green Agriculture: A Green Pearl?

| About: China Green (CGA)

Recently, China Green Agriculture Inc. (NYSE:CGA) completed a $28.8 million common stock offering. The Company intends to use all of the net proceeds to expand its existing research and development facilities through the construction of new intelligent green-houses, research and training centers. The Company estimates that these new facilities will require an aggregate investment of approximately $38.6 million over the course of two years.

Beyond Trading recommended to its subscribers to use the event, stock offering, as an excellent buying opportunity in the range $7-8.

"Our new greenhouse facilities will further equip our research and development team to introduce new products to meet the growing demand for green foods while bringing our products to the market quickly," stated Mr. Tao Li, Chairman and CEO of China Green Agriculture. "Our proprietary R&D platform coupled with our strong marketing and after sales support have allowed us to promptly generate revenue as we continue to expand our market share over the next 3-5 years."

The company is a leading producer and distributor of humic acid ("HA") based liquid compound fertilizer through its wholly owned subsidiary, Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. and today announced it is expecting to exceed the high end of its previously announced revenue guidance of $32.8 million to $33.3 million due to strong sales from its green fertilizer products in the fiscal fourth quarter of 2009.

The Company now expects revenues in excess of $34 million for fiscal year 2009; a record for the company. Fiscal year 2009 and fourth quarter financial results will be reported in mid-September 2009.

As an organic fertilizer supplier, China Green Agriculture is expected to benefit from China's push toward green technologies. China announced a $586 billion domestic stimulus package. The company is based in the world’s fastest growing economy.

China Green Agriculture currently markets its fertilizer products to private wholesalers and retailers of agricultural farm products in 27 provinces in the PRC.

Positive Aspects

  1. Fundamentals (at the time of recommended purchase):
    P/E: 12 (quite low)
    PEG Ratio (5-year): 0.32
    Profit Margin: 36% (very good)
  2. Insiders
    CEO owns more than 1/3 of the company (good indicator)
  3. No institutional coverage yet (good indicator)

Negative Aspects

  1. Too early to call it a long term winner
  2. Very high volatility, the stock abruptly fell off a cliff around $25 per share
  3. Increased float (stock offering), this will damper the possibility for very large gains short term.

Beyond Trading has given the following targets on China Green Agriculture Inc.:

  • Potential target max. short term: $12.5
  • Maximum target not for short term and solely in case the company executes well its strategic plan: $17

Disclosure: No position on the stock; recommended to its subscribers as an excellent buying opportunity in the range $7-8, average size: 15,000 shares.