On August 17, 2009 the GeoTeam coded China Agritech (OTC:CAGC) as a GeoSpecial. The Company reported stellar 2009 second quarter earnings, exceeding analyst EPS estimates by about $0.10. We have recoded CAGC as a GeoBargain.
2009 Second Quarter Financial results
|2nd Qtr. 2009||2nd Qtr. 2008||Period Change|
|GAAP Revenue||$21.0 million||$13.4 million||57.0%|
|GAAP EPS a||$0.22||$0.12||83.3%|
|Fully Tax-Adjusted EPS||$0.19||$0.11||73.7%|
|Fully Diluted Shares b||25,313,241||24,699,615||2.5%|
a EPS includes approximately $0.02 due to a reclassification of marketing rebate of approximately $716,478 from selling expenses to net revenues.
b CAGC plans on affecting a 4 for 1 reverse split which should help the Company qualify for an upgrade to a senior exchange.
Select Valuation Items
- Price: $3.05 (8/26/09)
- Fully Tax-Adjusted Trailing EPS: $0.46
- Tax-Adjusted P/E: 6.63
- Book Value Per Share: $2.91
The GeoTeam owned China Agritech (OTC:CAGC) in the past, but sold the stock when it appeared that above average EPS growth was not materializing. Leading up to this quarter, we were largely unimpressed with the Company's recent EPS growth trend. However, we re-established a small position in China Agritech stock based on low valuation statistics. Furthermore, the Company has an overall strong balance sheet, despite an ongoing issue with accounts receivable. After listening to a replay of the CAGC second quarter call, the GeoTeam believes:
- There is a good chance that the second quarter earnings per share levels may be maintained going forward, due to the accelerating contribution from its non-liquid granular fertilizer product line.
- The accounts receivable issue will soon be rectified.
The author feels that China Agritech offers an interesting risk/reward opportunity. A key to successful investing is identifying depressed companies that are about to go through dramatic operating changes leading to an expansion of valuation multiples. An Improved earnings outlook, combined with a stronger balance sheet, could be the catalyst for such an situation.
Disclosure: Long CAGC.OB