China Finance Online Co. Ltd (NASDAQ:JRJC) is cheap and rapidly growing; creating monster potential for investors. The latest reported quarterly revenues rose 321 percent compared to the same period the previous year, and we believe Q2 will be another record quarter likely to be pre-announced any day. We have completed a thorough review of JRJC and determined the stock is grossly undervalued. Therefore, we assign a buy rating with a $20 price target.
JRJC is the only Chinese web-based financial information/service company listed on a major U.S. exchange. Both its portal sites, jrj.com and stockstar.com, are highly ranked on alexa.com, making us confident JRJC will sustain and grow revenues.
JRJC has four divisions:
- jrj.com - The leading provider of financial data and information in China and one of the world's leading Chinese finance portals.
- stockstar.com - China's first stock-market focused website, it also is one of the largest mobile financial information/service providers in China.
- Shenzhen Genius - Uses cutting-edge design concepts to develop financial-database and data-terminal products for financial institutions. It is supported by strategic partnerships with well-known universities, government agencies, stock exchanges, financial institutions and other third-party vendors.
- iSTAR Finance - Obtained Hong Kong SFC (Securities and Futures Commission) licenses to engage in securities trading, futures trading and securities-advising services. In addition to the Hong Kong market, in order to provide global trading and investment solutions to its clients, iSTAR Finance also will focus on securities and futures contract trading on overseas securities and futures exchanges.
China Finance Online launches China's first integrated web-based securities trading platform
On Aug. 18, 2014, JRJC entered into a strategic partnership with CITIC Securities (OTC:CIIHF) to integrate jrj.com and stockstar.com with a trading and settlement system. JRJC calls this trading platform Zhengquantong, which translates to Securities Master. Zhengquantong is the first platform in China to provide the retail investor real-time market information along with the ability to trade in real time. This platform will be available on all devices including computers, smart phones, tablets and smart TVs.
"We are extremely excited to form this groundbreaking partnership with CITIC, given China's accelerating financial and investment reforms and the liberalization of financial instruments available to Chinese investors," said Mr. Zhiwei Zhao, Chairman and CEO of China Finance Online.
Precious-metal trading business is generating significant growth
Beginning in 2013, JRJC started providing precious-metal trading services, part of the company's transition to a new business model. That transition was a reaction to a reduction in the company's revenues from its financial-information and investment-advisory businesses because of a sluggish Chinese stock market. Since then, as a result of this new business, the company's revenues have dramatically increased. JRJC has entered a growth phase, and precious-metal trading has been the driving force behind that.
According to the company's fiscal 2013 conference call, "precious metal trading services and other related financial services have great potential in China and with solid sustainability."
During the first quarter of 2014, revenue from the precious-metal trading business remained strong at $18 million despite the long Chinese New Year holidays. Under the company's new business model, that revenue continues to be the growth engine.
Net revenues for Q1 increased by 321 percent year-over-year
On June 19, 2014, JRJC announced Q1 earnings, which were a first-quarter record. This earnings explosion was a result of the new precious-metal trading business. Here are some of the highlights:
- Net revenues for Q1 were $23.2 million, representing a year-over-year increase of 321 percent from $5.5 million for the first quarter of 2013.
- Gross profit was $17.8 million, representing a year-over-year increase of 389 percent from $3.6 million in the first quarter of 2013.
- Net loss attributable to China Finance Online was $2 million, compared with a net loss of $4.3 million in the first quarter of 2013.
JRJC is likely at any time to pre-announce a record Q2
On May 9, 2014, JRJC pre-announced net revenues of $21 million for the first quarter of 2014 and later reported Q1 net revenues of $23.2 million, exceeding the pre-announcement by $2.2 million. The May pre-announcement came about one month before the Q1 release. With the Q2 2014 release now about one month away and with revenues for Q2 2013 having been only $7.6 million, we believe there is a strong chance that JRJC will pre-announce a record Q2 in the coming days.
A peer-group comparison shows JRJC is still significantly undervalued and worth about $20 per share
We pride ourselves on finding cheap growth companies with bright futures. In order to assign a value to JRJC, we used the best comparable companies within China. We found JRJC to be severely undervalued with amazing growth.
By averaging the ratios below, we conclude JRJC should be valued at $20 per share, which is more than 100 percent above its current level. JRJC also is growing faster than the four comparable competitors, making the stock even cheaper.
We believe JRJC is undiscovered, which creates a huge opportunity for investors to profit. With a cheap valuation compared to its peers and rapidly growing revenues, JRJC is primed to move significantly higher. With JRJC likely any day to pre-announce a record Q2, we believe the stock has farther to run. Therefore, we assign a buy rating with a $20 price target.
Disclosure: The author is long JRJC.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.