Kandi Technologies: $4,000 Car May Redeem Earning Worries

Kandi Technologies Corporation (KNDI.OB) is a China based producer of small vehicles, including go-karts, ATVs and golf carts. Additionally, the company has introduced, and should roll out shortly, a mini-car aimed at middle class Chinese consumers and value conscious North American consumers. The car is expected to debut at $4,000, quite a ways below the low end cars currently on the market. This rollout, if successful, could put Kandi at the forefront of cheap transportation in China and North America.

Fundamentals

Current fundamentals for Kandi are encouraging. The company's trailing 9 month revenues comes in at $26 million versus $6.3 million, a 313% increase. Earnings are also promising at $0.25 per share versus $0.00 per share. However, the company has more shares at the end of the third quarter than on average for the trailing nine months. Based on the higher number of shares (19.961 million) the company would have reported $0.20 per share. Additionally, the company estimates yearly sales at $39 million versus $14.5 million and earnings in excess of $0.25 on the year (using 19.961 million shares). At roughly $5 a share, that puts the company's PE at roughly 20 and total market cap around $100 million. For a potential large scale auto maker, these are good earnings, sales, and one can get in while the company is still small.

The company has virtually no long-term debt, but has yet to accumulate a bunch of cash. The balance sheet reads like a developing company that has yet to get fully favorable contract terms. Accounts receivable are over $12.5 million, or almost a third of the estimated full year sales. The company also appears to use short-term bank loans as a large part of financing, which is not good for the bottom line. Interest expense in the trailing 9-month period was fully $0.036 per share, dragging down the full potential of the company. Despite the rough balance sheet, profits should fuel a stronger balance sheet in the future, as cash provided by operating activities was over $4 million for the 9 month period.

Technicals

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Kandi has an excellent chart. The stock has formed a cup and handle base over the last 4 months. Volume picked up on the right side of the base in early January and then has subsequently dried up in the handle. $5.40 is the pivot point, or the point where the stock will "break out" of the base. Wise investors start buying in the handle and then increase their positions as the stock begins the break out of the base, presumably on large and increased volume.

Conclusion

I currently do not own any KNDI as I have put all my attention in another stock, Technical Communications Corporation (TCCO.OB). However, if the situation should change in TCCO, KNDI would be my second pick. The company is due to report earning within the next few weeks, but a caveat must be in place. The company had to file for an extension for the last two quarters and has taken a few extra days to report, which would make any investor nervous. Those with cash may want to begin purchasing a small amount of KNDI before the earnings report or a larger position if the stock should start to break out of the base. Beware, though, as any earnings report could be a hassle for a company. In the longer-term this company will remain one to watch due to the potential of the $4,000 car. The company's other small vehicle products are profitable and growing swiftly and the small car would only accelerate sales and presumable earnings growth.

Disclosure: none

Comments

[Stocklover:]

A very good stock. Today, it signaled a further rising potential, based on the chart. I think the following several days is a good time to buy.
Your picking of ZYNX and KNDI shows that you are strong at fundamental analysis. I trade stocks purely using technical analysis. Technically speaking, you should have sold TCCO when it was above 7.25 (the peak formed on 11/28/2004). Even if fundamentally TCCO is strong, it will take quite an uncertain period to break out 7.49 again.

2008 Mar 13 12:01 AM

[Bob Agriogi...:]

Kandi technologies year end numbers are out today. The numbers look great.

2008 Apr 01 11:41 AM

[User 171143:]

AP
Kandi 2007 Profit Jumps on Higher Sales
Tuesday April 1, 9:21 am ET
Chinese Go-Kart Maker Kandi Technologies Posts Sharply Higher 2007 Profit on Increased Sales


NEW YORK (AP) -- Kandi Technologies Corp., a Chinese manufacturer of go-carts and other small vehicles, said Tuesday its profit more than quadrupled last year as U.S. sales grew.
Net income last year rose to $5 million, or 31 cents per share, compared with $1.1 million, or 10 cents per share, in 2006.

Revenue increased to $34.7 million from $14.5 million a year earlier.

2008 Apr 01 11:49 AM