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Back in July of last year I wrote an article about much maligned China Green Agriculture (NYSE:CGA), questioning whether the company may have been unfairly tainted by short sellers. Anyone new to this company should read that article to get an important perspective on the recent tortured history of this company.

Like I've said before, without actually visiting CGA in China nor personally performing an audit on the company, like most investors, I have no fool proof way of ascertaining with 100% certainty whether or not the company is honorable and honest. However, with each passing quarterly report, including yesterday's excellent 2nd quarter fiscal 2012 EPS results, it seems more and more likely that CGA was the baby thrown out with the bathwater.

The bathwater, in this case, is the long list of other Chinese reverse merger companies that have blown up with accounting scandals and outright fraud. It should be noted that since the fraud allegations surfaced around two years ago, the company has twice filed audited 10-Ks with the SEC. Think about this: even in light of the well publicized allegations, an audit firm, in this case Kabani and Company of Los Angeles, still signed off and issued opinions on CGA's financials. Kabani isn't one of the "Big 4" audit firms, but it still follows the same rules.

After listening to the latest CGA earnings conference call, it is clear that this company is executing its business plan and putting up great numbers. Sales for the quarter ended 12/31/11 where up 33.4%. Diluted EPS was up 21.8% to $0.29. More importantly was how the company raised forward guidance:

The Third Quarter and Fiscal Year 2012 Guidance:

For the third quarter ended March 31, 2012, management expects net sales of $53.0 to $56.4 million, net income of $9.7 to $10.7 million, and EPS of $0.36 to $0.40 based on 26.9 million fully diluted weighted average shares outstanding. For the fiscal year ended June 30, 2012, the Company raises the revenue guidance: net sales of $212.3 to $228.0 million, reaffirms the net income guidance of $37.9 to $40.5 million and an EPS of $1.41 to $1.51 based on 26.9 million fully diluted weighted average shares outstanding in view of the strong performance of the second fiscal quarter.

The discount applied to CGA shares due to the cloud of its reverse merger origins remains huge. CGA's current share price of $4.61, applied to the mid point of its new forward guidance of $1.46 puts an incredibly cheap, forward P/E ratio of 3.16 on the company's shares. If the company can regain its credibility and the market begins valuing the company at the P/E ratio of the Agriculture Chemicals Industry average of 11, the company's share price would be valued at $16.06 per share. Obviously, this is a big "if" and the key unlocking the value of CGA. However, the longer CGA remains standing the more likely this scenario is in its future.

Disclosure: I am long CGA calls.

Disclaimer: This are the personal views of Wall Street Titan and should not be used for your investment decisions. All investors should always do their own due diligence.

Source: China Green Agriculture: Super EPS, Raising Guidance