A new expansion of Yuhe International, Inc. (NASDAQ:YUII) business promised again higher revenues and provided for huge spikes in the price and the trading volume for the stock yesterday. Ignoring at what costs that will come, the market seems enthusiastic and expects growth.Yesterday, the price of Yuhe International’s stock jumped 10.25% up on a more than six times higher trading volume. The close at $8.93 comes in a period of severe fluctuations of the price after the latest quarter results were released in May and the markets reaction was controversial. Despite the stable price increase throughout the day, the market was not consolidated and it could be thus too early to see the long expected lasting appreciation.
Also, YUII seems somewhat illiquid because large part of the shares are held by insiders and institutions, which adds to the risk of the stock. Though, investors are in an optimistic mood currently and see the company to continue growing, especially as yesterday the business strategy seemed to be executed and expanding. The company, engaged in growing chickens for hatching eggs and for selling day-old broilers in China, announced that its wholly-owned subsidiary Weifang Yuhe Poultry Co., Ltd. has acquired five more breeder farms.
Further, the controlling shareholder of the selling company will receive for certain services 300,000 restrictive shares of Yuhe International, which did not bother the market that much as even if there was a dilution threat, it would have been a minor one.
The fundamental base appears to be stable. Previous expansions have improved the revenues through raising the production volume during the three months ended March this year as compared to the same period last year. Also, certain bank loans of the company have been revised and additional funds will now come at more favorable terms: these loans will now expire in 2013 and the will have considerably lower interest rates.
Though, a future problem could be that the management seems not to be able to cope that quickly with the growing production. Because of the previous capacity expansion, the costs have also increased, which led to 4% smaller gross margin and the purchases of inventories reduced the operating cash flow.
