China Natural Gas: There's Still Time to Catch Some Growth

| About: China Natural (CANL)
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China Natural Gas, Inc., (OTC:CHNG), is the first China-based natural gas company publicly traded in the US. It currently owns and operates a 120 kilometer long compressed natural gas pipeline in Xi’an, China, a fast growing Chinese city supported by a population of approximately eight million and is the “gateway” to the broad Western regions of China. CHNG has three profitable business segments: end user delivery of natural gas services to residential, commercial and industrial customers; wholesale natural gas to retail natural gas filling stations; and retail natural gas at company-owned natural gas filling stations. The city of Xi’an has approximately 20,000 Taxis, 3,000 buses and 2,000 special purpose vehicles that are powered by compressed natural gas.

I’m quite certain I've posted CHNG.OB in bull mode several times, though for some odd reason I never went further than looking at the chart and saying to myself , “hmm, interesting. I’ll add it to bull mode”. I’m regretting it now, as this stock looks very attractive and good money could have already been made.

Fundamental Analysis:

CHNG.OB is a small cap company with a current market cap of $99.5m, compared to the Oil & Gas industry's 2.5b average cap. While its current PS ratio is trading at a higher multiple than the industry's, the important thing to note is CHNG’s PE ratios, with trading at 13.7x multiple compared to the industry's 17.3x PE. Even more impressive is their forecasted growth into the future with a one year forward PE of just 3.67x. For the current year, CHNG is expecting to report .39eps and a huge jump to follow in 08′ with expectations of 1.12eps, and 1.39eps in 09′. Hypothetically speaking, if CHND continued on average its trading multiple of 13.7x we could expect price per share to be trading in the mid teens in 2008, if the company doesn’t run into any trouble. The financial condition also looks great here, with a high current ratio and no long term debt, making this an attractive growth stock.


Technical Analysis:

Price made a very bullish breakout from a key resistance point of 3.5 last week, which I will serve as very heavy support if the price makes a dip from here. In yesterday's session, price continued this rally on above average volume breaking out from a bullish pennant continuation pattern. This chart is very bullish and volume has been fairly consistent in 2007.

Long term chart:

chng.ob long term chart

Short term chart:

chng.ob short term chart


I really wish I would have dug into this company back when it was trading in the 2’s, and not now that it just breached $4/share. But even at this price the stock looks very attractive in my book, and I think it should continue to trend higher given its fundamentals, and bullish technicals. Although, given that the price has recently made a very strong 50% rally in a short amount of time, it's possible that we could see some profit taking, maybe even back to 3.50 support, which would be a bargain for these shares. So for now I will only fill a 1/2 position, and look to buy the second 1/2 on a dip if I can.

Disclosure: Author has a long position in CHNG.OB