Written by Roopak Chakravarty
TopEquityNews.com
Once in a while, I stumble upon a stock that in some ways seems too good to be true. Usually that’s just what they are, but I believe this one has the potential to be a superstar. The company is called China Marine Food Group (CMFO). For full disclosure purposes I recently picked up some shares and am feeling good about it. So what does this company do?
China Marine makes and sells seafood products in mainland China. It doesn’t sound like a sexy thing to do but it is definitely profitable. In my opinion the crown jewel of the company is its new algae energy drink called Hi-Power which is growing strongly. In the recently completed second quarter, sales of this drink grew 183% sequentially, although admittedly off of a low base. Another bullish sign is the fact that the sales and marketing staff of Hi-Power grew from 23 at the beginning of the year to 188 now. The three analysts following the stock seem confident that management will boost sales estimate of this drink in the near future.
Overall, the company released a terrific second-quarter report. Sales grew almost 87% from last year and gross margins rose a whopping 379 basis points. Earnings of 28 cents per share sailed past estimates of 18 cents per share. Net income soared 83% over last year. I love the fact that sales and earnings increased at a similar clip. Earnings growth without a corresponding rise in revenues is unsustainable.
With small caps like this with a market cap of about $175 million, a common concern is that onerous debt levels could prevent future growth and even threaten viability. This is not the case with CMFO. It only has about $8 million in total liabilities and plenty of cash and operating cash flow to cover daily operations. I can’t believe this stock is still trading at about 5x earnings, which seems like a ridiculously low valuation given its growth rate and its growth prospects.
It is important to bear in mind that this is a small cap and a foreign one at that, so there is certainly risk involved in buying the shares. That being said, I am quite bullish on the future of this stock. I think that $10 is a good possibility and perhaps much more over the next two years if the company continues to execute.
Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal or corporate ownership, may influence or factor into an expert’s stock analysis or opinion.
All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.
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