LJ International: Best Play Off Chinese Volatility?

LJ International Inc. (JADE), a jewelry company that through its ENZO brand, has become the largest foreign jewelry retailer in China, could be the best way to play the recent volatility created by the Chinese market. The stock has had the wildest price movements in all of the Chinese related companies that we have been tracking. Take a look at some of this week's swings.

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Monday's close: $11.08
Tuesday's low: Down 14% at $9.55

Tuesday's close: $9.70
Wednesday's high: Up 15% at $11.17

Wednesday's close: $10.95
Thursday's low: Down 11% $9.80

With this price fluctuation in mind, it seems pretty likely that a short term double digit percentage gain awaits the investor, no matter what direction the stock moves. The question is then, should one go long or short?

Well, the Shanghai Index has stabilized and the central government has come out and said that the capital gains tax will not be re-imposed. Add this to the fact that the company has recently boosted its earnings outlook, and you might have your answer. The company guided higher for the fourth quarter and now expects record revenues of $40 million and earnings per share of $.16 due in part to a higher ENZO store count, and increasing consumer acceptance of the ENZO brand. The full year estimates were also raised to 34 cents per share on revenue of $123 million, compared to the prior forecast of 20 cents to 28 cents, on sales of $115 million to $120 million. Chairman and CEO Yu Chuan Yih remarked that LJ International has been able to achieve a high double-digit annual growth rate while also significantly widening its gross and net margins.

While the fundamentals are bright now, investors should still remain cautious because a change in China's economy will affect LJ International's earnings picture.