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Potential 10-Bagger: SkyPeople Fruit Juice (SPU)

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April 27, 2010 – Comments (3) | RELATED TICKERS: SPU

 

Here’s a micro-cap company that appears to be ridiculously under valued and has just started trading on the NASDAQ on April 20th. 

 

SkyPeople Fruit Juice (SPU)

 

They are a Chinese based company that is a wholesale supplier of fruit juices, along with having their own line of juices under the brand “Hedetang” which is a fairly new addition to their business. 

 

This company’s growth rates are insane.  In Q4 of 09 they grew revenues over 86% and net income by 77%.  Full year 2009 revenues were up 42% yoy and they produced $0.85 in EPS.  The one analyst covering this company is expecting 30% per annum growth for the next 5 years, and $1.15 in EPS for 2011.  With this kind of growth you’d expect to have to pay a premium for this stock, but not so!  They are trading at a mere 7.5 times trailing earnings, and 5.8 times forward estimates!

 

This analyst may even be very conservative with his numbers as the company itself has given guidance of $92 million to $102 million for 2010 compared to the $87.4 million estimate currently predicted by the analyst. 

 

The margin of safety on this company based on its low valuation in relation to its growth (not to mention the $14 million of cash on their balance sheet for their $124 million market cap which brings their enterprise value down making the company cheaper yet), makes this company a complete no-brainer as an investment.  They are already the largest kiwi producer in Asia (annual output of 200,000 tons), and also grow apples, mulberry and pears, so here is where the real growth comes in: Their own domestic market!  So far only 13% of their fruit juice concentrates are sold to domestic fruit juice manufacturers (almost 70% is sold to the U.S., E.U. and Middle East.  However they expect this to be less than 50% within a few years as their own Hedetang brand grows along with general juice consumption in China).  And grow it will!  As of now per capita consumption of fruit juice in China is 1/40th of what is consumed in developed nations.  There is literally no chance this ratio will not increase for years and years, as the Chinese middle class grows and their standards of living rise.

 

I purchased some today based on these fundamentals however the stock also appears to be at an attractive level technically.  Since late January (the stock traded on the AMEX prior to being listed on the NASDAQ), it has had a series of rallies and sell offs.  The sell-off support levels have ranged between just over $5 and $6, with each low being higher than the previous low.  The highs have basically all shown resistance near the $7 level, so what I’m seeing for now is a good purchase near this $6 support level, with an overall upward flag on the chart.

 

http://twitter.com/rknapton

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RK

3 Comments – Post Your Own

#1) On April 27, 2010 at 11:09 PM, Option1307 (30.17) wrote:

I have to say I've been impressed with their recent revenue and EPS year over year increases the last two yrs. Things look like they are finally working out for SPU.

However, I've never been able to take the plunge and actually buy any shares b/c they have not proven to me that they can be consistent and turn a profit yearly. The were loosing monehy eith the best of them prior to 2008.

Also, while they have been significantly profitable the last 2 yrs., the majority of that has come in the 4th quarter b/c of the cyclic nature of juice/etc. prices/demand. I definitely can't say that I like this uneven and cyclic nature. It leaves a lot of room for earnings misses. One bad month b/c of weather etc. in the 4th quarter would destroy this companies yearly earnings by 60 or 70%. Ouch!

I think I'll continue to stay away for now, but man those revenue increases are nice.

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#2) On April 27, 2010 at 11:37 PM, ChrisGraley (29.71) wrote:

I don't believe their financials.

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#3) On April 27, 2010 at 11:58 PM, Option1307 (30.17) wrote:

ChrisGraley

Yep, pretty much agreed with you there.

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