Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Like it or Not, Skystar Bio Pharmaceutical is Here

|Includes: Skystar Bio - Pharmaceutical Company (SKBI)

Skystar Bio Pharmaceutical (NASDAQ:SKBI) has made a big splash in a short period of time. Here's actually what you need to know about the stock.

Say whatever you want to about the quality of Skystar Bio Pharmaceutical Company's (SKBI 14.72 +1.87%) animal care and veterinary products, but you have to give the company credit - they're darn good at getting publicity. The company's animal vaccines took a back seat today to give CEO Weibing Lu a chance to ring the NASDAQ's opening bell, where the stock is now listed.

Since SKBI is one of those stocks that's not going to leave the limelight anytime soon, a quick - and unbiased - overview is in order. The biased view of Skystar Bio Pharmaceutical will come after that.

In short, the Skystar Bio Pharmaceutical Company is self-described as a "China-based producer and distributor of veterinary medicines, vaccines, micro-organisms and feed additives." They currently market 170 products, and have over 40 products in development.

More important to investors, Skystar reported $25.6 million in total revenues and net income of $5.6 million in fiscal 2008. In 2007, the company generated revenues of $15.1 million and posted a net loss of $2.0 million. The progress is what it is.

Less-oft discussed is SKBI's valuation, even though it's a pleasant surprise. With a market cap of a modest $27.7 million, the P/S ratio is a reasonable (ok, cheap) 1.08, versus an average of 2.0 to 3.0. The P/E ratio is also a very affordable 4.9. Last year's net margins were 21.8%.

Those are all great numbers by anybody's standards, so why hasn't the market fallen in love with this stock the way we've all fallen in love with most other China-based companies?

Here's a theory - this is one of those rare cases where a lack of exposure truly was the problem, as opposed to that just being an excuse for a lack of interest. Ever since SKBI has been trading on the NASDAQ (June 26th), volume and interest have been growing. Skystar also hired an investor relations firm in early July, which hints at their commitment to fostering a solid presence at least in investor's hearts and minds (if not their portfolios).

Our take: It's a nice value, with or without the expected growth (and despite the recent dilution - see below). The only caveat is the same one as always....just because a stock should be trading at a certain value doesn't mean it will.

That's why we rely on technical analysis - to pick and choose entry and exit spots knowing that stock prices aren't always logical. The problem in this case is simply that SKBI hasn't been trading long enough to properly perform any meaningful chart analysis.

Nevertheless...

Though there's zero coverage from analysts (the company's still too small for them), the rumors and whispers floating around out there suggest the current quarter's earnings will fall somewhere between 60 and 80 cents per share. At 70 cents, income would basically be in line with 2008's results, so it's not an unreasonable assumption.

As for growth in 2010, based on our findings, Skystar Bio Pharmaceutical is anticipating - at a minimum - a $17 million improvement in 2008's revenue. We suspect net margins will be comparable to last year. That, however, doesn't offer any perspective about what's going on this year. Perhaps investors should split the difference to come up with a 2009 results guess?

On the less-compelling side of the equation, Skystar Bio Pharmaceutical Company just issued 1.4 million shares at $12.98 each to raise about $20 million. Kudos for being able to raise funds, but it sure dilutes the daylights out of the 1.8 million I&O shares already in investor's hands.

The fund-raising efforts have been cited as a major problem by message board bashers, and perhaps some of it was deserved. However, we suggest you judge the merits of the opportunity based on what the current capitalization is - not what it was. We don't anticipate the need for more fund-raising in the near future.  

Either way, for better or worse, Skystar Bio Pharmaceutical Company is now on the radar.