The Long Case for Qiao Xing Mobile Communication

Dec.12.07 | About: Qiao Xing (QXM)

Qiao Xing Mobile Communication Co. Ltd. (NYSE: QXM) is an often overlooked China cell phone company that was spun off from parent Qiao Xing Universal Telephone Inc (NASDAQ: XING). The company offers a compelling valuation for a variety of reasons. First is the P/E ratio based on future earnings expectations. The 2007 estimates are for an earnings per share of $1.40 for the full year. At the current levels, this gives the stock a P/E of just above 6 with an industry standard P/E that is between 15-22 (companies including Nokia). Qiao Xing Mobile also posted a robust year over year revenue growth of 28.3% in the previous quarter (Q3 2007).

The company's balance sheet remains extremely strong with approximately $281.46 million in cash and only $109.35 million in debt. ($3.20 per share net cash)

As QXM enters the Chinese New Year, the company's busiest season, I think that this is the best time to consider a second look into a stock offering this magnitude of value.

Every company also has downside risk. This company's main risks as I see them, are competition and margin pressures. They have so far lived up to the challenge by not only increasing their gross margins last quarter by 3.1% year over year, but they also increase handset shipments 116% year over year and 8.6% sequentially. This tells me that their innovative phone designs and the pure growth in China is proving them more than able to compete successfully in a growingly desirable market.

For my personal 2008 end of year price target, I am using a conservative low end P/E of 15 and also going to use the estimate of $1.40 earnings per share, which would give this stock a conservative valuation at $21.00 per share.

Always do your own full due diligence before buying ANY stock.

Disclosure: Author has a long position in QXM