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American Oriental Investors Unimpressed by Acquisition News

For the past four years AOB has been making acquisitions and dramatically increasing the revenue and earnings from those acquisitions. Yet, despite continually producing outstanding results, their acquisitions are questioned and suspect every time. At some point investors may learn to look at the actual results and trust the judgment of this management team.

What is certain is that the distribution will lower net margins of the company. But, look at the price they are paying for 550 m in revenue (which is likely to grow significantly), and you quickly see that this issue is return on invested capital or return on equity. If this produces 5% ROE that will be a 27.5m return. But, they will increase sales of their other products through this pipeline, increase the size the pipeline, and increase the efficiency of additional acquisitions. It is a good bet that within one year they will achieve a net run rate of earnings at a level equal to the cost of the acquisition. That is a handsome investment in any country.

This stock is now trading for a Trailing 12m PE of around 12 and 8 going forward, with an incredibly consistent record of increasing sales at 50% yoy and earnings 30-40% yoy. If you look at a four year chart of revenue and earnings, the consistency of performance is incredible.