CNinsure Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese insurance company CNinsure (Nasdaq: CISG  ) were getting pummeled by investors today, losing as much as 31% in intraday trading after a group led by the company's Chairman and CEO pulled an offer to take the company private.

So what: Amid a wave of Chinese small-cap companies turning out to be frauds, the entire segment has been beaten down to ridiculous-seeming valuation levels. In a handful of cases, this has led the companies' management teams to announce buyout offers to take the respective companies private. The problem is that in many cases, investors just didn't believe that the deals would go through and the announcement from CNinsure today shows that they weren't completely crazy.

Yinan Hu, CNinsure's CEO, sought to soothe investors by saying that the pulled deal was the result of "a challenging deal environment" and that the company has "full confidence in the growth prospects."

Now what: I have to say, this would be a pretty worrisome development in my eyes if I were a holder of CNinsure stock. This certainly isn't the ideal environment to get buyout deals done, but this would have been a relatively small deal. In CNinsure you've supposedly got a company that grew its earnings per share at a compounded rate of 26% for the three years ending in 2010. Over the past twelve months, it reported $90 million in net income, which would give it a profit multiple of just 10.6 based on the buyout price (which is much higher than today's price). This seems almost stupidly attractive and yet the CEO and a team from TPG Asia -- which would have had access to the books -- didn't find it good enough to get the deal done? That just doesn’t sound right to me.

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