I normally wouldn’t put this stock in the “Speculation Station” category, but it is a Chinese small cap and by definition that is speculative. However, looking at the key valuation numbers and the market opportunity does give it a significant margin of safety to buy. I believe this stock has the potential to double or triple over the next couple years as investors realize its value. The stock in question is Universal Travel Group (UTA).
According to Yahoo! Finance, the company operates as a travel service provider offering air ticketing and hotel booking services, as well as domestic and international packaged tourism services via the Internet, customer representatives, and kiosks in China.
Catering to the Sweet Spot
China is developing a huge middle class as its economy soars and they are increasing getting the itch to travel more. UTA specializes in packaged tours, which specifically caters to these people, so their potential market is absolutely gigantic. With the country’s GDP growing about 9% a year, millions and millions more people join the middle class and become potential customers of the company.
Can You Say Cheap?
The stock is trading at a ridiculous P/E of 4.7x on expected 2011 earnings estimates. Obviously no American stock would trade at such low valuations given the growth prospects, but there is a significant discount for being a Chinese small cap. It’s ROE is a strong 27% and its operating margin is also robust at 20.6%. It is also barely trading above book value, and is trading below its level of sales.
One Caveat
I must give a big caveat to you though. There are many short sellers in the stock and some even doubt that this is a real company. This is the norm for several Chinese small caps and is the main reason that they as a group trade at such paltry valuations. We have to go by the published data, and obviously I am assuming that the financials are legit. Assuming they are, I am willing to put a price target of about $11 over the next year or so. Of course, do your own due diligence and only allocate risk capital to the stock.
Speculation Station: Deeply Undervalued Stock With Chance to Double is an article from: 
