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  • China Agritech - A Risk/Reward Opportunity 1 comment
    Aug 27, 2009 11:10 AM | about stocks: CAGC, CTEC.OB

    On August 17, 2009 the GeoTeam® coded China Agritech (CAGC.OB) as a GeoSpecial. The Company reported stellar 2009 second quarter earnings, exceeding analyst EPS estimates by about $0.10.  We have recoded CAGC as a GeoBargain.

    2009 Second Quarter Financial results

      2nd Qtr. 2009  2nd Qtr. 2008 Period Change
    GAAP Revenue $21.0 million $13.4 million 57.0%
    GAAP EPS a $0.22 $0.12 83.3%
    Tax Rate 21.5% 29.9% -28.1%
    Fully Tax-Adjusted EPS $0.18 $0.11 63.6%
    Fully Diluted Shares b 25,313,241 24,699,615 2.5%

    a 2009 EPS includes approximately $0.02 due to a reclassification of marketing rebate of approximately $716,478 from selling expenses to net revenues.

    b CAGC plans on affecting a 4 for 1 reverse split which should help the Company qualify for an upgrade to a senior exchange.

    Select Valuation Items

    • Price: $3.05 (8/26/09)
    • Fully Tax-Adjusted Trailing EPS: $0.41
    • Tax-Adjusted P/E:7.43
    • Book Value Per Share: $2.91

    The GeoTeam® owned China Agritech in the past, but sold the stock when it appeared that above average EPS growth was not materializing. Leading up to this quarter, we were largely unimpressed with the Company's recent EPS growth trend.  Furthermore, although the Company has an overall strong balance sheet it is still dealing with an ongoing accounts receivable collection issue.  Despite these concerns, we re-established a small position in China Agritech stock based on low valuation statistics.   After listening to a replay of the CAGC second quarter call, the GeoTeam® believes:

    • There is a good chance that the second quarter earnings per share levels may be maintained going forward, due to the accelerating contribution from its non-liquid granular fertilizer product line.
    • The accounts receivable issue will soon be rectified.
    The GeoTeam® feels that China Agritech offers an interesting risk/reward opportunity. A key to successful investing is identifying depressed companies that are about to go through dramatic operating changes leading to an expansion of valuation multiples. An Improved earnings outlook, combined with a stronger balance sheet, could be the catalyst for such an situation.

    Disclosure: Long CAGC.OB
    Themes: GeoSpecial, GeoBargain, China Agritech, Risk/Reward Stocks: CAGC, CTEC.OB
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This post has 1 comment:

  •  
    This played out great as an uplist play, having moved out of the OTC, the stock rallied to $20 (would have been $5 adjusting for its 4:1 reverse split). It's now back down to the $15 range, in less than a week.

    From their website:

    BEIJING, Oct. 20 /PRNewswire-Asia-First... -- China Agritech, Inc. (NasdaqGM: CAGC) ("China Agritech", or the "Company"), a leading national organic fertilizer manufacturer and distributor in China, today announced the signing and closing of a private placement with Carlyle Asia Growth Partners, the growth capital arm of The Carlyle Group, of 1,392,768 shares of China Agritech common stock and warrants to purchase up to an additional 928,514 shares of China Agritech common stock for aggregate gross proceeds of $15 million. As a result of the transaction, The Carlyle Group, through its affiliates holds approximately 16.5% of the issued and outstanding China Agritech common stock. In the event that the Company does not meet a net income target of $11.5 million for fiscal year 2009, The Carlyle Group affiliates will be issued additional shares of common stock and the initial warrant exercise price of $10.77 per share will be reduced, thereby resulting in additional warrant shares being issuable upon exercise of the warrants. The proceeds from the private placement will be used for business expansion and working capital purposes.
    Oct 20 04:44 PM | Link | Reply
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