tonykau (< 20)

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It's a Great Time to Buy: JRJC

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May 14, 2011 – Comments (3) | RELATED TICKERS: JRJC

It's always nice when the stars align. Today's buy recommendation for China Finance Online (JRJC), currently trading at $5.05 is one such example. From a fundamental standpoint, we're seeing a stock under-priced by about 50% according to my valuation. JRJC stalled its 3-digit revenue growth in 2009, but was up 11% in 2010. They also beat earnings estimates for the first 3 quarters of 2010, and only missed Q4 by a cent.

Cash. JRJC is sitting on $107 million in cash/equivalents. Backing out $6 million in debt, that's $4.61/share. So, if you believe that management will continue to make a profit, this is certainly a low-risk entry point with a solid foundation. Which leads us to the next question...

Will JRJC make a profit in the future? JRJC's investor information business model will likely see considerable growth after China recently opened up limited access to US mutual funds. This would lead to Chinese investment firms requiring better information to remain competitive in the face of these new market entrants, and retail investors using JRJC services more to evaluate the new opportunities. And that's where we could realistically see considerable sales growth, if only because JRJC happens to be opportunely perched in an expanding industry.

But is now the right time to buy, from a technical standpoint? See for yourself.

The decline over the last 3 weeks is on strongly decreasing, correlated volume. In fact, the slope of the 12-day volume linear regression line (the one I watch for Trend Exhaustion) is -7.7% (per day) with and R-squared of 0.63, which is one of the best-looking downward trends (tightest correlation and steepest slope combinations) that I usually see. Couple that with a tiring negative price movement, and you have a prime candidate for a short-term price reversal.

Additionally, over the past few months, the large volume spikes have been up-days, which can mean that larger players are buying, or just, in general, demand for the stock has gone up.

Suggested Stop Loss: If JRJC crosses it's recent low of $4.30 on higher-than-average volume, it's a good signal that more downward pressure is to come. But, you might actually just consider buying more instead, since the company would be trading for less than liquidation value at that point.

Disclosure: Tony Kau has no position in any stock mentioned and no plans to initiate any positions within 72 hours. He is not compensated by any companies mentioned. You can view his other posts at TonyKau.com.

3 Comments – Post Your Own

#1) On May 14, 2011 at 10:14 AM, buffalonate (96.52) wrote:

In the last quarter revenue declined 1.5% and they lost money. It also has a p/e ratio of 50. This company has cash that is the only good thing I can say about it. Technically it is cheap because it is sitting on a pile of money but why bother to invest in a company that has decreasing revenue and no profit.

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#2) On May 14, 2011 at 12:56 PM, tonykau (< 20) wrote:

Great points. If we back the cash out of their price, we're at $0.44/share and the LTM EPS is $0.10. That's a P/E of 4.4.

Now it's a question of whether they can be profitable and grow as a company. That was my main concern, too, but I feel that the wealth in China, as it is being slowly opened up to world markets, is going to need the informational service that JRJC provides. If the whole pie grows, inertia helps all the slices get bigger with it.

And if it doesn't? Your max risk is about 9% ($0.44).

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#3) On May 14, 2011 at 2:25 PM, buffalonate (96.52) wrote:

If you like value you should be loading up on the large bank stocks. The fundamentals are improving and they are still at historical lows. I wrote a blog about it a while back you should read. I also think Ford and GM are both really cheap. The global market for cars is exploding and with the emerging countries quickly developing I see growth in the auto market for a long time. I usually don't invest in large companies but the value is just too good to ignore.

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