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Last week, I wrote an article about a small cap Chinese company, Gushan Environmental (NYSE:GU), that I thought was so far undervalued that it was due for a price correction. Shortly after the article was published, the company announced a share repurchase program, and the stock rose more than 50%. Now, I have decided to write about another company in my portfolio that I feel is drastically undervalued. China Ritar Power Corp. (NASDAQ:CRTP), is a rapidly growing producer of batteries for several different industries including Uninterruptible Power Sources, Telecom, Renewable Energy, and Light Electronic Vehicles. It is this author’s opinion that the current market price of the company is significantly below its intrinsic value based on its sustained profitability, its continued growth of both top and bottom line, its recent and continued expansion of operations and all the while operating in a growing energy renewables industry in a growing Chinese economy.

Below, we will delve into CRTP’s financial statements to extract some ratios and make comparisons.

Income Statement:

In 2009, CRTP had $98.63MN in sales. Through the first two quarters of 2010, CRTP has had $58.4MN in sales, and is on track to surpass its 2009 sales figures by a large margin. Global Hunter Securities, which maintained its buy rating on CRTP in August, is predicting sales of $128MN for full year 2010.

Through the first two quarters of 2010 alone, CRTP has generated sales nearly equal to its entire market cap (~$60MN sales in Q1 and Q2 versus $69.5MN market cap).

In the latest reported full year (calendar 2009), sales were $98.6MN versus CRTP’s current market capitalization of $69.5MN.

This makes for a measly .7x trailing 2009 Price to Sales multiple. You can buy CRTP today in the market for less than it reported in sales in 2009; by a significant amount. And the company is growing. Similarly if you annualize CRTP's first two quarters of sales to arrive at $116.8MN for 2010, or if you believe Global Hunter Security's forecast of $128MN in sales for 2010, you'd arrive at forward Price to Sales ratios of .59x and .54x respectively.

So, naturally, I strived to understand how this could be. Typically in cases of extremely low valuations, the companies are either not profitable or sales are declining. Fortunately for the sake of finding good deals in the marketplace, neither is the case here.

Below is a table showing annual sales between 2005 and 2010. It makes for a compounded annual growth rate of 41.2%. If you wish to disallow 2010 since it represents an estimate, the compounded annual growth rate of reported sales between 2005 and 2009 is 44.2%.

2005 Actual


2006 Actual


2007 Actual


2008 Actual


2009 Actual


2010 Global Hunter Est.


Sales are growing rapidly, so let’s take a look at profitability. Below is a table of gross and net profit (before taxes) margins since 2008. I would argue that this is a relevant time frame at which to compare since it reflects current profitability drivers including current average selling prices and cost of raw materials. I will note that margins were highly positive before this time frame as well, and in some quarters even higher than shown here.

click to enlarge

This author’s conclusion is that margins are stable, which is a favorable trait for a company going through a high-growth phase.

Income from continuing operations in 2009 was $8.14MN, or approximately .37 per share with 21.9MN shares outstanding as of its latest 10Q. With a price of $3.18 per share, this makes for a trailing P/E of 8.6x. Any forward P/E calculations one may calculate using forecasted EPS figures would equate to even lower multiples. For instance, Global Hunter forecasts $.62 per share in EPS, making for a measly 5.1x forward P/E for 2011, which represents roughly 1.5 years forward looking.

Balance Sheet

This author believes that the value proposition for shareholders here is the growth in sales and earnings, but I will mention a few things about the balance sheet. Reading my bio, you will see that I require extremely “healthy” balance sheets before investing in small cap companies. This certainly is the case here. With only $2.2MN of long term debt, $9.5MN in cash, and ~$100MN in Total Assets, this author’s opinion is that the balance sheet is strong for any company, and especially favorable for a company currently operating in a growth phase. This information can be found here.


This author believes that CRTP is priced substantially below its intrinsic value based on its proven history of growth in both top and bottom line. With P/E ratios of 5.1X 2011 EPS, and while currently trading at 70% of its 2009 sales, and while growing top line by more than 40% per year since 2005, I believe this presents substantial value for investors willing to take on some risk.

CRTP is expanding profitably, and I see no signs of slowing down in the near term. The trend is our friend in the following ways. Average selling prices are up in 2010. Sales are growing year after year. Margins are consistently good. Production is expanding by more than 50% in 2010 alone. The company recently signed a major new contract to be a supplier for American Power Conversion Corp. China is growing. Renewable energy is growing.

It is no surprise that management's sentiments are upbeat, evident by quote from a recent press release below.

China Ritar Power has been granted a new industrial park by the Hengyang government. The industrial park will be completed during the second quarter of 2010 and the Company expects to begin installing equipment for 10 production lines in the second half of the year. Once completed, the total number of production lines will increase from 19 to 29.

"We are upbeat on the outlook for 2010 as opportunities in our target niche markets remain robust. Specifically, the telecom industry is expected to spend approximately $10-12 million as they build out the 3G network in China," commented Mr. Hu. "Over the past year, we have been working closely with the top three telecom providers in China and have been approved as a qualified supplier for China Unicom (NYSE:CHU) and China Mobile (NYSE:CHL) and expect to be approved by China Telecom (NYSE:CHA) this year."

According to, the average price target is $7, a premium of 119% to yesterday’s closing price. This author does not draw a conclusion as to a specific price target, though at a bare minimum, I believe CRTP's intrinsic value to be at least 2x 2009 sales, and could be higher once the the new production line begins contributing to CRTP's financial performance. This would equate to $9 per share.

Disclosure: Long CRTP