Kevin Mulhern submits:
Our attention has recently been caught by the strong technical action in China Agritech (CAGC), a U.S. public company that is rapidly expanding in China’s liquid compound organic fertilizer and agricultural products market. CAGC has seen some nice gains since its introduction to NASDAQ trading on Sept 21, but a brief look at its fundamentals seems to indicate a strong growth company with a relatively cheap valuation and little public exposure. We believe the lack of analyst coverage will serve as a catalyst for CAGC going forward as it gets picked up. The company is a small-cap (~$240 mil), high beta name with almost zero institutional ownership. Risky to be sure, but a look at the balance sheet and income statement indicate a healthy and growing company.
CAGC’s revenues grew at 16% in 2006, 29% in 2007, 19% in 2008, and as of Q3 appear to have grown at around 65% this year. The stock has excellent operating metrics with an EBITDA and Operating margins fluctuating between 30% and 40% over the years. It carries no long-term debt and has a Current Ratio of above 5. According to the company, its fertilizers are capable of raising crop yields in China by around 30% and their high-tech expertise is particularly valuable as Chinese regulators crack down on the quality and safety of agricultural products. Interestingly, CAGC has sought to alleviate the usual shadiness of small-cap Chinese companies by appointing a reputable CFO (former head of a CPA firm in Hong Kong) and a new set of independent Directors.