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Rate This Stock! (The CGA Story)



May 05, 2009 – Comments (6) | RELATED TICKERS: CGA

Those of you who frequent CAPS and who pay attention to relatively unimportant things probably already know that I don’t like the $100 million market cap minimum that’s required for a stock to start collecting CAPS ratings. That’s primarily because it denies me the opportunity to collect points in the market niche that I spend the most time studying, but it’s also because it’s among the micro caps that I believe CAPS can offer the most incremental insight. After all, no one else is covering these stocks, so if one of you come up with something/anything (!), then we’re all better off.

Alas, no dice. But that’s why I wanted to take this opportunity to highlight the fact that China Green Agriculture (CGA) has crossed the $100 million market cap threshold and is ready to receive your ratings. This, of course, is 160% worth of gains after I recommended the stock in Motley Fool Global Gains, but better late than never.

The good news is that China Green is still worth of your green thumbs. I put fair value somewhere between $8 and $12 and with the company’s new manufacturing facility about to bring 40,000 tons of annual capacity online (the company’s current capacity is just 10,000 tons), we do have a near-term earnings catalyst. (Incidentally, our Global Gains team hopes to go back and see the new facility in operation when we return to China in June/July.)

But back to that market cap minimum
Our experience with CGA, however, highlights why CAPS could/should be a great source of information on micro cap stocks. After all, when we visited China Green in Xian last summer, we met with the CEO, Mr. Li, toured the company’s greenhouse research facility, and got a sense of the corporate culture (see The Snake posing at the company’s orchid-soaked HQ above). We came away impressed.

You can figure out which one Mr. Li is. The man knows his fertilizer.

That boots on the ground intelligence allowed us to watch as the company’s PIPE shares got registered with the SEC and then -- due to some distressed hedge fund selling -- dropped from the $3.25 PIPE offering price all the way down to $2.20. The stock at that point was selling for a little more than 3x my FY 2009 (ends on June 30) earnings estimate. If the multiple expanded to 10x, we were looking at a triple.

China Green’s research center. Each greenhouse can mimic one of China’s climate zones.

Thanks to a listing on the AMEX and renewed institutional interest in the stock, that multiple has expanded, and we’ve almost got that triple on our Global Gains scorecard. It happened faster than anticipated, but it turns out the market is a pretty efficient place. But again, the reason we got a deal was because we were willing to go out and gain an informational advantage over the stock market.

Can CAPS give you that advantage?
But when it comes to the next China Green Agriculture, due to the CAPS market cap minimum, you won’t find it here. And indeed, there are a number of Chinese micro caps we continue to study today and hope to visit on our upcoming Global Gains research trip.

So I hold out hope that the system will change, but in the meantime, go and rate CGA. At a $100mm market cap, it’s still a pretty small company with a big market opportunity ahead of it. There’s also already a great pitch on its CAPS page courtesy of CREWatcher that -- though I quibble with the use of a 10.25% discount rate (too low) on the valuation -- accurately indentifies the main business drivers going forward.

And I’ll plan the seed that you should sign up to get our dispatches from our next research trip because we are on the lookout for the next China Green-type situation at Global Gains. More on that later.

The classic channel check. That was a good cucumber.

6 Comments – Post Your Own

#1) On May 05, 2009 at 12:58 PM, dudemonkey (50.26) wrote:

"Dedicated to Quality Service and Forward Together With You" is a great slogan.

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#2) On May 05, 2009 at 1:01 PM, TMFMmbop (29.32) wrote:

There's a market in China for good English-language translators, that's for sure. :-)

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#3) On May 05, 2009 at 3:55 PM, JibJabs (90.99) wrote:

That's why I'm heading over there. Sep 1. Got a job. Boooyah!

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#4) On May 05, 2009 at 5:45 PM, XMFYoda (95.83) wrote:

Boots on the Ground, JibJabs.  Please stay in touch.

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#5) On June 26, 2009 at 10:21 PM, Shawnerz (< 20) wrote:

Just a guess.  Is the guy with the cucumber TMFOpie?  If anyone should have a knickname of "Opie," it should be him. :)


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#6) On January 05, 2010 at 2:26 PM, led37 (< 20) wrote:

Thanks for informing me of the pictures and info about CGA!  I get lost pretty easily in MF2010 and the structure of it but was pleased to get a response about my interest in CTRP!  I've seen the reports that you have sent to us MFs about the information you gather on the trips to China & India... the real world is what I learned to really like in MF Hidden Gems several years ago!  (I do not identify nearly so freely with MFPortfloio 2010?)  BIG TIME MONEY GETS NASTY in present day USA!!!  CYFL has been a wonderful small bank in Michigan... still honest I hope, but down to $12.25.  The Kalamazoo Banks got bought out by the banks that were in trouble?  ACAS is in an existance of full CORUPTION in the $2.56 range from $45 range in 2007???  I got some CGA at $11.58 10/08/2009 and love that part of China... the new farming equipment at local peoples co-ops, crops looking so good, trucking gas stations within range, flowers in pots making so many things look great along the express ways!  LED37

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