China Advanced Construction Materials: Still Waiting for a Breakout

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 |  About: China Advanced Construction Materials Group, Inc. (CADC)
by: Ephraim Fields
The stock price of China Advanced Construction Materials (NASDAQ:CADC) is relatively unchanged since I first mentioned it last month. This is disappointing since a few positive events have occurred since then:
1) The company received its first sell-side analyst coverage when Roth Capital published on CADC last month. Roth provided EPS estimates of $0.98 for the fiscal year ending June 2010, and $1.14 for the fiscal year ending June 2011. Since most companies have fiscal years that end in December, we should note that according to Roth’s estimates, CADC should earn $1.09 this calendar year, which means the stock is trading at a very attractive multiple of 4.8x CY 2010 EPS. In addition, Roth initiated coverage with a Buy rating and an $8.00 price target.
2) CADC presented at the Roth conference in California.
3) CADC recently completed a non-deal roadshow, meeting with investors in several different cities.
While it is frustrating that CADC’s stock price is not higher, the bigger concern is the stock’s lack of trading volume. The company’s low stock price can be explained by heavy selling pressure from certain parties (which may include holders of the company’s convertible preferred or investors who bought stock in the recent $4.60 per share offering). However, the stock’s lack of trading volume indicates to me that, despite its recent investor relations efforts (including attending the Roth conference and doing the subsequent non-deal roadshow), CADC’s management has failed to convince investors that CADC is an attractive investment. I attended CADC’s presentation at the Roth conference and was disappointed by it because it included many unnecessary points and failed to include several critical points (such as the stock’s low valuation) that would have certainly garnered investor interest.
Nevertheless, I remain very bullish on CADC. Firstly, investors are becoming increasingly aware of China’s upcoming large railway projects, which CADC is well positioned to capitalize on. For example, this weekend Barron’s mentioned the anticipated multibillion dollar IPO for the Beijing-Shanghai High-Speed Railway. Secondly, I expect that over time CADC’s president, who is bright but relatively new to his position, will learn how to better communicate with the investment community. Third, it appears that some of the stock’s selling pressure has started to abate.
Disclosure: Long CADC