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buffalonate (44.13)

Stay Away From Yongye International!



April 20, 2011 – Comments (5) | RELATED TICKERS: YONG.DL

They have been attacked recently by short sellers on several occasions.  I have 3 reasons I have found that make me want to stay far away from this stock.  The first is their exceptional rate of growth.  They claim they have gone from distributing to 1000 stores to 26000 stores in around 2 years.  This type of growth strikes me as highly unlikely.  If this was a tech company maybe I buy their story but this company just makes fertilizer. 

The second reason I don't buy their story is after these short attacks the company has not bought back shares.  Ebix was recently under short attack and they did the smart thing and bought back shares immediately.  Doing so gives investors confidence in the company.  Yongye has 50 million in cash and has not bought back any shares.  Some have argued that they want to invest their money into the company instead of buying shares.  Yongye claims they have grown profits 50% in the last year.  Its stock has a p/e ratio of 5 and if you follow Peter Lynch a p/e ratio should equal its growth rate.  So the p/e ratio should be 50 which means this company is valued at 1/10 of its real value.  If they company is real buying back shares would be the best investment the company could make because they would be buying something that is worth 10 times more.  No investment in their company could ever match this return on investment. 

The last reason is that in the last 2 years there have been no insiders buying stock even after the short attack.  If you knew a stock was worth 10 times what it is currently priced and you are an executive who knows for sure how healthy the company is why don't you buy all the stock you can afford.  Even the people who run this company won't buy the stock for 90% off which I find particularly damning. Get on Yahoo Finance for yourself and look up the insider trading history for this company. 

If you ever find proof that insiders or the company have actually purchased and not just announced that they are going to buy stock then go ahead buy the stock but until then you would be really wise to stay away from this one.

5 Comments – Post Your Own

#1) On April 20, 2011 at 10:09 PM, cattywampus (< 20) wrote:

Is there a book or a chapter in a book that covers the short attack?  Short circuiting stocks seems to be a hot trend. I agree with the blog's position on Yong's failure to buy back shares. Yesterday, someone stated that put option buying had surged on YONG and another short attack might be in the offing. The language, distance, culture and political barriers seem to all be contribuing factors in the conundrum beating this stock down.  



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#2) On April 21, 2011 at 10:27 AM, buffalonate (44.13) wrote:

I am not shorting Yongye.  I just want to try to keep individual investors out of questionable investments.  People keep arguing over whether or not the 10-K statements of the Chinese smallcaps are legit or not.  The fact that these companies won't buy their own shares at dirt cheap prices makes it pretty clear they aren't legit.  If they won't buy their own shares why should we.     

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#3) On April 21, 2011 at 3:09 PM, cattywampus (< 20) wrote:

I find it interesting as a new investor when I read and watch these Chinese ag stocks go up and down. Haven't bought any, but I am tempted. Would never even consider shorting  a stock with my experience. Tried a 30 day trial of MF Options and it took my 2 weeks to understand that you could buy and sell or write options, found that totally confusing, had to go to the library and get a book before I could even figure out what they were talking about on the site. Never have bought an option . Now that you know how little experience I have you can see where I'm coming from. Most interesting stock lessons. PCBC rights offering, Rare Earth's and now Chinese ag  stocks. Mostly just watching and learning. Thanks Nate and to all the fools who have helped me along the way.

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#4) On April 21, 2011 at 3:22 PM, buffalonate (44.13) wrote:

You should read Peter Lynch's One Up on Wallstreet or The Motley's Fool's Guide to Investing.  They are the best investing books I have ever found.  Peter Lynch has made me a lot of money over the years. 

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#5) On April 22, 2011 at 5:15 PM, cattywampus (< 20) wrote:

Great advice, Lynch's book was the first book I read, also recommended by a fellow fool. I got in over my head and joined Special Ops for a few months. Tom was the one who pointed out PCBC as a stock of interest and I learned alot from watching that bank stock when Gerald Ford took it over and put it through a rights offering. Your Money and Your Brain by Jason Zweig was another favorite. Thanks for the advice, I'm currently reading through Tom and David's books. 

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