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China Recycling Energy Corporation: A Potential Value Play

|Includes:China Recycling Energy Corporation (CREG)

If you're an avid follower of investment guru Warren Buffet, you'll probably have heard this quote: "The 19th century belonged to England, the 20th century belonged to the U.S., and the 21st century belongs to China. Invest accordingly."

As such, whenever value investors come across publicly traded (U.S. traded especially) Chinese companies, it could be worthwhile to check to see if they'd make good value plays. China Recycling Energy Corporation (NASDAQ: CREG) is the Chinese company that we'll consider here.

Brief Company Overview

CREG is a professional recycling energy service provider. Its services include design of waste to energy recycling systems for industrial applications, custom manufacture of waste to energy recycling equipment, devices to the order and specification of others, as well as energy recycling services through operation of energy systems for industrial operations.


The last financial figures that the company released (for 2013 third quarter) show that it is finally beginning to gain traction. Sales for the quarter amounted to $21.7 million, representing an increase of about 4467 percent, compared with the same quarter in 2012. Total sales for the nine-month period ended September 30, 2013 amounted to about $50 million, turning out to be a 4767 percent increase, as compared with the same period in 2012.

More interesting is the fact that this company has broken even so early in its business. Breaking even early is often difficult for budding companies. It's even more difficult to break even in a business that's not yet mainstream. So, that CREG is beginning with profits suggests that the management team is effective, and as such, the future of the company is bright.

For the third quarter, net income came in at $4.4 million compared with the net loss of $1.4 million during the third quarter of 2012. If the company continues to grow near current rate, it's next to certain that putting your money in this company would turn out to be a smart value play.

Countless Opportunities for CREG

The opportunities in China alone are unlimited. First thing to note is that China currently consumes more energy than the entire U.S. According to the U.S. Energy Information Administration (NYSEMKT:EIA), most of the energy consumed in China is generated from coal, translating to more and more greenhouse emission. In addition, EIA projects in 2013's International Energy Outlook that China's consumption of energy will be twice as much as the consumption of the entire U.S. by 2040. In the end, the need for renewable energy in China would be immense if the environment must be sustained.

It's easy to say that these are mere estimates. However, if what Warren Buffet said about the 21st century belonging to China is correct, then these projections are in place. You might want to note that what makes the 21st century belong to China is a high level of innovation plus industrialization. Down the chain, industrialization would come with increased energy demand.

Investor Takeaway

In conclusion, I'd like to show value investors one more reason why the current valuation shows that there's an opportunity in CREG. Its current PE (NYSE:TTM) is 12.12, which seem expensive for a value play as many analysts might argue. However, you'd be paying 12.12 times for a revenue growth of over 4,500 percent, which is a rare situation. And the revenue should continue to grow considering the increasing need for cleaner energy in China.

Stocks: CREG