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EPS Guidance Hurts Telestone

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TSTC_Rod_2010_tumb August 15, 2011 (Chinavestor) Telecommunication equipment maker and service provider Telestone Technologies (NASDAQ:TSTC) reported second quarter earnings on Monday. Revenues grew 46.4% to $24.3 million YoY and net income reached $$4.5 million, or $0.37 per diluted share from $.163 per share a year ago, representing a 160% increase. Yet the stock price hardly moved, the stock is up $.24 or 4.3% at 2:30 P.M.

I have to admit that I have been following this stock closely for a number of reasons. One of them is my encounter with Mr. Han Daqing, CEO of Telestone Technologies (NASDAQ:TSTC), less than a year ago. The Company came to present at the annual Rodman & Renshaw China Investor Conference in New York and I had a chance to meet them in person. Mr. Han Daqing can carry conversation in English, as definite plus for someone from China at his age. While his business has its ups and downs, the overall impression of him was good. 

Telestone CEO Han Daqing (center) with Blaze Fabry at the Rodman & Renshaw Conf. in NYC, Sept. 2010


Regarding the company itself, investors have to remember that Telestone Technologies (NASDAQ:TSTC) runs on a cyclical business cycle. They bid on projects that are offered at the beginning of the year and collect receivables in the third and increasingly in the fourth quarter. The following chart featuring historical revenue and earnings growth along its stock price, explains this very well.


The good news is that the Company expects revenues to grow 30% for 2011, ginving us an estimate of $56 million for the third quarter. But net ioncome is expected to grow only 10% for the full year.

Slacking bottom line growth may explain lackluster performance of Telesone Technologies (NASDAQ:TSTC) today. Larger rival Comba Telecom Systems (HKG:2342) advanced 1.7% today.

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