Every once and awhile a company pops up on the radar that peaks my interest and really needs to be checked out thoroughly. I'm sometimes hesitant to write about Chinese companies because of the governmental structure there, but this one looks like a winner. Take a read and let's get some feedback.
Kandi Technologies Group (NASDAQ:KNDI) through its subsidiaries, designs, develops, manufactures, and commercializes electric vehicles (EVs) products, EV parts, and off-road vehicles in China and internationally. Its EV parts comprise battery packs, body parts, EV drive motors, EV controllers, air conditioning units, and other auto parts.
We all know there are some major issues facing China that aren't going to disappear anytime soon. One of them being pollution. China faces a huge issue which is forcing the government to incentivize and push sales of electric vehicles. Also, as the country continues to develop economically it will further the traffic congestion and scarce parking issues facing many large cities. Kandi is helping solve both of these problems with its 50/50 joint venture that produces electric vehicles and its Micro Public Transportation program that provides a pure electric vehicle transportation platform for urban residents, which is available in 16 cities currently.
As with any company, there are barriers facing Kandi and other companies within the electric vehicle industry, such as high costs, short driving range, longer than desired charging time, battery maintenance, and pollution. However, over the next five to ten years as the industry continues to work through these issues, Kandi could find itself in a very advantageous spot in a country desperately needing electric vehicle solutions. As technology changes, more efficient recyclable batteries will be put into production, as well as green charging stations all over the mainland.
There are three things currently working in our favor while analyzing whether or not this is a good entry point on this stock. First their last earnings report.
- Q4 EV parts sales increased 51.6% year over year to $57.5 million
- 2015 EV parts sales increased 68.4% year over year to $196.1 million- Q4 the JV company sold 12,100 EV products, a 231.0% increase year over year
- 2015 the JV company sold 24,220 EV products, a 121.5% increase year over year
- Q4 Non-GAAP net income increased 250.9% year over year to $13.9 million, or $0.30 EPS
-Full year non-GAAP net income increased 100.9% year over year to $28.5 million, or $0.61 EPS
Secondly, combined sales of EVs and plug-in hybrids rose 340% to 331,092 vehicles, with EVs accounting for about 250,000 of those. Automotive China News reported Monday that Miao Wei, China's minister of Industry and Information Technology, told reporters that sales of both EVs and plug-in hybrids will continue to climb this year. Both are eligible for government subsidies.
Thirdly, the stock has gotten punished over the past 12 months. The low is $5.05 and the high is $13.70 so there is room to the upside. Kandi has a pretty good cash to debt ratio, and there is a very large short position, 17%, as of two weeks ago. I also cannot overlook the premiums on the covered calls. The June $9 calls are paying $.40 or 5.5%. If the stock runs away to $9 in three months take the 28% return, go shop alibaba.com and buy one for yourself.
I would take advantage of this opportunity here and position yourself below $7.50. And if you are concerned about protecting the downside write calls more frequently.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.