Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies. ~ Peter Lynch
L&L Energy, Inc. (NasdaqGS: LLEN) has experienced its share of bumps in the road over the past several months. In December, the company faced back-to-back slams from Herb Greenberg, who arbitrarily chose to pick on LLEN but was roundly criticized for his shallow analysis of a perfectly good company. With its coal business booming, it’s only a matter of time before L&L’s stock price begins to reflect its tremendous growth and it trades at a fair market value.
L&L’s closest competitor, Puda Coal (Amex: PUDA), which is very similar in size and business model to LLEN, trades at a 10.4x P/E – more than double LLEN’s 5.0x multiple. At the same conservative P/E and fiscal 2011 organic earnings guidance of $1.61, LLEN would trade at $16.74, representing a 115% return from its recent price of $7.79.
Here are just a few other reasons LLEN presents an attractive buying opportunity:
- Long-term demand: China is the world’s largest coal consumer and will continue to see strong demand for years despite government-backed green energy initiatives. 70% of China’s energy is generated by coal.
- Unique competitive position: LLEN benefits from both low-cost operations and natural resources in China and American management and safety standards.
- Near-term acquisition: Management has indicated on more than one occasion that at least one potential acquisition is under development for the near future.
- Increased transparency: In light of recent investor wariness of the entire Chinese small-cap space, L&L’s management has taken extra measures to increase transparency, such as therecent announcement of investor and media visits to its Chinese operational headquarters and one of its mines.
- Resuming conference participation: After a brief quiet period, L&L’s management is resuming participation in a number of major conferences, including the Rodman & Renshaw China conference and the American Coal Council’s upcoming coal forum.
- New key senior management members: In recent months, LLEN has added several members to its board and management team with strong backgrounds in accounting and international business, including Andrew Leitch (independent director), David Lin (acting CFO), Robert Okun(independent director), Edmund Moy (VP Corporate Infrastructure), and Norman Mineta (Vice Chairman of the Board).
- Financial performance: Financial results for the first half of fiscal 2011, announced in December, showed revenues up 203% year-over-year, net income up 86%, and EPS up 76%. Third quarter earnings are expected to be announced within the week, and every indication is that the results will be equally strong.
For those who are still concerned about the allegations made by Herb Greenberg, the blog below, posted on Motley Fool CAPS shortly after his CNBC spot, contains a thorough, point-by-point response to his arguments: http://caps.fool.com/blogs/herb-greenberg-and-llen/495649?lidx=7
For investors who possess the patience and farsighted perspective Mr. Lynch describes in the quote above, LLEN poses an attractive investment opportunity. A severely beaten down stock price with a strong, growing underlying business is a classic recipe for superior long-term returns.
Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visithttp://www.redchip.com/disclosures.asp?src=rcv.