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Why China Education Alliance, Inc. (NYSE: CEU) is a Smart Buy

|Includes: China Education Alliance, Inc. (CEAI)

The stock price of China Education Alliance, Inc. (NYSE: CEU) is cheap by any metric. The question is: “Why is China Education Alliance trading at a 8 P/E in an industry that trades at 22 P/E, particularly when the company has $2.16 per share in cash, $65 million, and its revenue and earnings have been growing at 40% + over the last three years?” The stock is up from $2.45 last May and has been as high as $7.48. A funding was done last year at $5.50, 3.2 million shares and there were 2 million plus warrants at $2.00, that have now been exercised. 4Q09 was basically flat quarter-over-quarter though revenues were up 13.5% and earnings were up 29% year-over-year. The education sector has grown at an average of 9.7% per year over the last 30 years in China. CEU is loaded with cash and will make acquisitions that could result in revenue and earnings growth of 50% plus. We cannot predict with certainty when an acquisition will be completed, but when it happens and is announced, investors want to be in the stock long before then. At some point in time CEU will trade at a fair market value. At current price levels, this is the best stock in the RedChip portfolio.

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Disclosure: CEU is a client of RedChip