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throwerw (99.83)

China growth for a Graham price

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August 03, 2009 – Comments (11) | RELATED TICKERS: ORS

Orsus Xelent Tech, Inc. is engaged in the business of designing, manufacturing and distributing cellular phones for retail and wholesale distribution in China.  ORS focuses on feature rich mid- and low-end phones, targeting a market that is underserved by the bigger cell phone makers.  I like this, because most of the growth in this industry will be happening in rural areas.

None of this probably sounds very enticing, but the numbers warrant a second look.

About 1.50 per share in net working capital, mostly accounts receivables.  Revenues up 4x in the last four years, EPS up 3x from .12 to .38.  SG&A expenses are going down while revenue is going up which makes me want to kiss management on the forehead.  The company has yet to have a losing quarter.  In fact, it would be very difficult for it to have a losing quarter given such low SGA expenses.

So, what would you pay for a company with 1.50 in net working capital (what you would get if you liquidated the business) that has found a profitable niche in a growing market to the tune of .38 per share?  Act fast and it can all be yours for .70 (while supplies last).  You can buy a dollar, even better, an RMB for half an RMB and get a solid business thrown in for free!

11 Comments – Post Your Own

#1) On August 03, 2009 at 11:43 AM, throwerw (99.83) wrote:

I own shares of this, by the way.  This is not a recommendation to buy or sell anything.  Do your own due diligence before investing.

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#2) On August 03, 2009 at 5:52 PM, chk999 (99.99) wrote:

Interesting. Looking at the latest balance sheet available on Yahoo, virtually all the assets are in the accounts receiveables. The EPS looks to be about half of the stock price. If business stays good, this is a heck of a bargain. But it is a very small company, so there isn't much room for error.

Thanks for pointing this out!

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#3) On August 03, 2009 at 6:32 PM, robstuck (< 20) wrote:

1. Benjamin graham wouldn't invest in technology.

2. " wouldn't invest in a company that was trading under a dollar. 

2. they make flip phones which are soon to be outdated

3. they are a no name brand. even the chinese like name brands.

 

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#4) On August 03, 2009 at 6:33 PM, robstuck (< 20) wrote:

ps look at the phones they make.. they look like trash as does their website.

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#5) On August 03, 2009 at 7:47 PM, chk999 (99.99) wrote:

robstuck - I don't think the #1 and #2 in your list are true. Ben Graham didn't mention not investing in tech stocks in Security Analysis. That is a Buffett rule. I also don't see any rule against stocks under a dollar. And he certainly bought many "cigar butts" in the Graham-Newman partnerships.

BG would be looking to see if there was a sufficient margin of safety in the price and the possibility of business erosion might negate any margin of safety. That I can't comment on without a lot more digging.

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#6) On August 04, 2009 at 11:56 AM, throwerw (99.83) wrote:

wow. everything small and chinese is moving today.  ors now at 84 cents and rising.  thanks chk, i wondered about the accounts receivable as well.  it seems like a lot of chinese companies, especially small ones, deal in accounts receivable instead of cash. maybe it has to due with the availability of credit?  nobody here in china uses credit cards, which basically just transfers the risk of accounts receivable to the credit card companies.  in one of the sec filings (8-k,  8/20/08) they mention that there is a 3rd party guaranteeing up to 300 million RMB of the accounts receivable for one of their contracts.  maybe this is the normal way of doing business in china.

as for the technology comment, i think the point is that the business has to be something easily understood.  cell phones have become a commodity, albeit a constantly changing one, but these guys seem to be able to keep up with the times for very little in the way of R&D.

the fact that one share of this stock trades for under a dollar is irrelevant, and really only helps because it means large funds are definitely not in it.  if the company had a 10-1 reverse split, the difference in value and price would remain the same, but maybe people like you would feel more comfortable investing in it.

the chinese like a good value, and chinese companies are developing their own brands.  for example, most people here pass on the more expensive suzuki motorcycles in favor of cheaper chinese brands of similar quality.  this company seems to be delivering what people want.  on the contrary to comment #3, if you go to their website and look up new products, you will see that they make many other kinds of phones.

i'm more interested in the numbers than what their website looks like.  would you pay a premium for a company because it had a good website?  at least it had all the information i was looking for. 

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#7) On August 05, 2009 at 3:17 PM, throwerw (99.83) wrote:

sorry robstuck, keep trying buddy

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#8) On August 07, 2009 at 2:43 AM, throwerw (99.83) wrote:

actually the product portion of the website is very out of date.  if you go into the most recent annual report, you will see that none of the models listed are on the company website.  if you do an image search on baidu, however, you will be able to find pictures of the newer models.  none of them are flip phones.

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#9) On September 22, 2009 at 5:21 PM, dantefromsomm (45.45) wrote:

go back to the site its been updated n new products looking like someone is doing whats needed.i own by the way.last quarter report shot them up to $1.30 then dribbled back down for no reason n i bought in at .65. get in before its to late.

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#10) On September 28, 2009 at 2:58 PM, stocki711 (98.92) wrote:

You are basically buying their bad debt. You are betting on a recovery rate of greater than 68% which I think is a safe bet. I bet 85-95% the receivables are recovered and the company gains liquidity. At that point the stock is a 3-5 bagger. I wrote a piece on yahoo for this one.

 

http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_O/threadview?m=tm&bn=51449&tid=9756&mid=9756&tof=1&frt=2 

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#11) On October 14, 2009 at 3:56 PM, throwerw (99.83) wrote:

well it looks like quite a few people are agreeing with me today... i sold a third of what i bought and will let the rest ride

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