Chungst

A Look at Zhongpin's Modest Beat

"Gross margin was 13.1% in the first quarter of 2008 compared to 13.9% in the first quarter of 2007. The year-over-year decline in gross margin was attributed to hog prices rising faster than the prices of pork products."

This reminds of elevator analysis, something I was trained never to do as an analyst. Elevator analysis is something like sales went up, but margins came down more than sales, and thus EBIT is lower than prior year (akin to movements of an elevator), respectively.

Stating the facts is nice and informative at a cocktail party, but it doesn't tell us the reason(s) why the facts happen as it did. Unless you know "why" gross profit declined, then you are just speculating because for we know, the company could have been testing a new product that positively impacted sales but since it carried lower margins, gross profit suffered. It could have been a timing issue as well. Anyone can make speculations.

Cheers.

Zhongpin, Inc.: HOGS Can Fly

I looked at this company by accident when I was trying to type HOG (the motorcycle manufacturer) and instead, I typed HOGS. I figured what the heck, I'll take a lot at the financials. I never got comfortable with the HOGS' accounting results. First, I didn't recognize the accounting firm from Utah. Second, I didn't understand why the company has $48.7 million in cash as of 12/31/07 but also had $47.7 million in short term debt -- effectively, no surplus cash on about $291 million of revenues and profits of $18.5 million, respectively (note that comprehensive income, i.e. under FASB 130 -- was higher at $25 million!). Third, the company lacked a long-term (and stable) history. Fourth, keep in mind this company generated something like $24MM in Funds From Operations and Cash Flow From Operation was about half-a-million for 12/31/07 and that was a HUGE red flag in my book.

It may be a great stock, but I never could get my arounds around the firm. In the US, HOGS would be considered a "roll-up" and these types of deals involve considerable risks.

Lastly, most people would rather quote Warren Buffett or Charlie Munger as opposed to Ken Fisher. I don't mean to disrespect Ken's wonderful salemanship skills to grow his asset management firm in the penisula, but it's just thet Buffett and Munger are clearly giants in the investment field. Yes, I read Ken Fisher's book "Super Stock" when it first came out so I knew about the guy and his "glitch" concept when he was relatively unknown. Now, I can't stand the guy due to his incessant commercials.

Cheers.