penywise (80.31)

AOB - ripe for takeover

September 04, 2010 – Comments (1) | RELATED TICKERS: AOB

The problem with AOB is its management.  The stock currently appears cheap - but trades at a discount because of some shady/questionable actions of management.  The investment thesis is intact - a profitable, Chinese natural pharmaceutical company with a growing product line, expansion of sales into rural china and ongoing product development.

 With the current mergers and acquisitions frenzy going on here in the states I’ve thought that AOB could fit the bill for a potential target.  The underlying fundamentals of the company would be a spring to profits.  The company has a current market cap of under 200 million and trades for with a forward P/E of about 5.7, price to book of 0.44, price to sales of 0.58, PEG of 0.93.  The balance sheet shows 96 m cash on hand and debt of about 125 m.  Overall the stock would be a solid buy – if one could trust the future moves of Tony Liu and the board.   In the spirit of full disclosure -  I have a long position in the stock, but my dollar cost averaging has not kept up with the losses of the past year.  As the news has come out of questionable overpriced property purchases, as well as investigative blogs charging lack of full disclosure of business relationships and alleging potential dealings tainted by conflict of interests by CEO Tony Liu and others, the value of the stock has plummeted.  There is a crisis of confidence.  Nevertheless, as the company remains profitable, has had strong historical growth, and continues to appear cheap; I have some hope for the future.  I was encouraged when the company selected Ernst and Young as their accounting firm.  At least now I believe I can have faith in the reported numbers.  However, I think the company would be much more valuable in the hands of someone else then the current board/CEO.   It is pure speculation on my part but I believe this could be a gem of an acquisition for the right buyer, or could benefit from an activist Chinese value investor in the model of Carl Ichan. Going forward, rather than waiting for a leopard to change its spots, I believe this would be the best way to harvest the value of the company.  Any thoughts?