Is Yongye International the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Yongye International (Nasdaq: YONG  ) fits the bill.

The quest for perfectionStocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Yongye International.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 175.8%* Pass
  1-Year Revenue Growth > 12% 118.3% Pass
Margins Gross Margin > 35% 55.7% Pass
  Net Margin > 15% 22.6% Pass
Balance Sheet Debt to Equity < 50% 0.4% Pass
  Current Ratio > 1.3 6.61 Pass
Opportunities Return on Equity > 15% 28.7% Pass
Valuation Normalized P/E < 20 7.10 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   8 out of 10

Source: Capital IQ, a division of Standard and Poor's. 
*4-year growth rate. Total score = number of passes.

Yongye hits a very promising score of 8. Once the Chinese maker of animal nutrition and fertilizer products starts paying a dividend, it could become a perfect stock.

Yongye finds itself in a very popular industry. Demand for fertilizer is high and seems poised to jump higher as growing populations need greater crop production, especially amid higher food prices. That demand has pushed PotashCorp (NYSE: POT  ) into the spotlight with BHP Billiton's acquisition attempt. But despite being much smaller and having greater growth potential, Yongye's shares trade at just a fraction of the multiples that PotashCorp and peers Mosaic (NYSE: MOS  ) and Agrium (NYSE: AGU  ) fetch.

Part of what's contributing to the stock's rock-bottom price at the moment is skepticism about Chinese small-cap stocks. Various allegations have hit China MediaExpress (Nasdaq: CCME  ) and China Agritech (Nasdaq: CAGC  ) , forcing trading halts that have lasted more than a week. Recently, Yongye found itself a target of a bearish blogger, which caused a big drop in the company's shares.

Right now, the witch hunt for fraudulent Chinese companies has hijacked Yongye's stock price. But if the company is legitimate, then this might be the perfect buying opportunity for a near-perfect stock.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Yongye International to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Fool owns shares of Yongye International, which is a Motley Fool Global Gains recommendation. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (48) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 29, 2011, at 10:29 AM, 123spot wrote:

    "if"? I thought that's what the site visit and diligent work by Tim Hanson found. a legitimate business. Thank you for the analysis, but if Tim has doubts about the business's legitimacy, I'd like to know. Can't get to Mongolia this week, though I accept that the responsibility for dd is mine part of that is reasonable reliance on trusted sources. If he thinks he was hoodwinked, we must remember his recommendations for a cautious approach, small buy in of a basket, and expected volatility-- but inquiring minds want to know if he has re-assessed the business itself perhaps by making inquiries of the contacts he established during his trip.

  • Report this Comment On March 29, 2011, at 10:41 AM, RegLeCrisp wrote:

    Wait, did you just say 'if the company is legitimate' it could be a good buy?!! Come on, you guys are better than that. Get Tim Hanson on the line. If the company is legitimate it could be a could buy...well, if my aunt had &%#$! she could be my uncle.

  • Report this Comment On March 29, 2011, at 2:37 PM, paddlinfaster wrote:

    If you'd bought this stock ANYtime in the last 14 months, "PERFECT" is not the 1st word that comes to mind...

  • Report this Comment On March 29, 2011, at 4:20 PM, kenwu wrote:

    What do you mean by saying "if"? Does Motley Fool have doubt in YONG now? I think Mr. Tim Henson needs to clarify it as a lot of investors including me are relying on the positive report he published after his visit to YONG last year. The financial numbers all look good. the biggest question right now is if YONG is a legit company. we don't have chance to go to visit the company in person but Tim and his team did. Can we NOT trust his report anymore?

  • Report this Comment On March 29, 2011, at 4:33 PM, buffalonate wrote:

    The Motley Fool is trying real hard to pump this dog. 2 articles pumping this fraud of a stock in 2 days. It has a p/e of 6 because nobody believes their story.

  • Report this Comment On March 29, 2011, at 4:39 PM, MichalTod wrote:

    Tim Hanson has talked about Yongye recently in the Global Gains newsletter. I suspect that if you want up to the second views on his thoughts on it, the Fool wants you to subscribe. ;-)

  • Report this Comment On March 29, 2011, at 5:34 PM, pablo4345 wrote:
  • Report this Comment On March 29, 2011, at 5:58 PM, buffalonate wrote:

    I read the article from pablo4345 above and they say they have gone from distribution to 1,000 stores last year to hopefully 20,000 at the end of this year. I don't believe that for one second. This is fertilizer we are talking about here not some revolutionary technology company. People in the U.S. are afraid of this company being a fraud so it trades really cheaply. If this company is legit wouldn't people in China be able to verify its business and their confidence would push the stock up to a more normal valuation. I would think that if this company is truly that great and trades at this cheap a level that the owner would take it private or somebody would buy them out. That article makes me more confident than ever that YONG is a total fraud.

  • Report this Comment On March 29, 2011, at 6:31 PM, Ok2bclever wrote:

    And that two of the first eight posts are negative ones from you verifies that you are a heavily shorting the stock.

    Burn time is fast approaching for the desperate, dispicable blogging shorters and it couldn't happen to a more derserving bunch.

  • Report this Comment On March 29, 2011, at 6:37 PM, buffalonate wrote:

    I have never shorted anything. If I was shorting this stock I would hae already sold it as it has dropped 20% in the last week. Read that article and tell me you believe a company can go from distributing to 1000 stores early last year to 20000 at the end of this year. That doesn't make any sense.

  • Report this Comment On March 29, 2011, at 7:15 PM, kenwu wrote:

    Can you not read Buffalonate? the 1000 stores was dated early 2009 when Yong just started. then it climbed to about 13,000 and it projected 20,000 by end of 2010. keep in mind the article is old. look at the date of the article.

  • Report this Comment On March 29, 2011, at 8:00 PM, buffalonate wrote:

    I might believe that growth in distribution if we are talking 5 to 10 years but not in 2 years. I'm not that gullible. They claim they went from distributing to 1000 stores to 13000 stores in 1 year. They claim they started the company in 2003 and now distribute to 20000 stores give or take. This type of growth from a fertilizer company is ridiculous. If you believe that story you will believe most anything.

  • Report this Comment On March 29, 2011, at 9:03 PM, TMFGalagan wrote:

    @123spot -

    I didn't mean to set off a storm by using the word "if." I don't speak for Tim Hanson, who quite clearly expressed his opinions on Yongye in this article:

    http://www.fool.com/investing/international/2011/02/10/the-c...

    best,

    dan (TMF Galagan)

  • Report this Comment On March 29, 2011, at 9:56 PM, anopenmind wrote:

    Oh my goodness! The expertise of Ian Bezek and other bashes about Yong being a fraud. Too bad a Chinese regional government did not see the truth and, reduced taxes for Yong for 3 years.....

    BEIJING, March 29, 2011 /PRNewswire via COMTEX/ -- Yongye International's main operating affiliate, Yongye Nongfeng, recently received a High-Tech Enterprise Certificate by Inner Mongolia Autonomous Region government.

    Companies with High-Tech certification are qualified to receive certain favorable government policies, including the reduction of corporate income tax rate. As a High-Tech enterprise, Yongye Nongfeng will receive a reduced corporate income tax rate of 15% for three years, starting from November 29, 2010. Prior to receiving the certification, Yongye Nongfeng's previous reduced 15% corporate income tax rate benefit ends in 2010.

  • Report this Comment On March 30, 2011, at 10:20 AM, ibisguy wrote:

    Thanks for the glaring sell signal on YONG!!

    Remember reading the article " Is CCME the perfect stock" Glad to get in on this short early.

    Can't thank you enough.

  • Report this Comment On March 30, 2011, at 10:52 AM, RegLeCrisp wrote:

    Good gravy, do you have a link for the CCME article? FOOL needs to flex some editorial muscle. Sorry, but that 'if' is really unforgivable.

    Imagine an analyst going before the investment manager. Sir, all the metrics are really singing in perfect harmony here. We should dig up some of our dry powder and jump in with both feet. IF the company is actually legitimate we stand to to take a very long bow one day. IM politley thanks the analyst and immediately initiates a short position.

    I'm long Yong (say it with me), but find myself looking for alternatives. The sad truth is that the only way to do DD is with a proper and clandestine operation. I literally want to see undercover video of farmers buying this stuff and talking about how great it is.

    Also, people should understand that evaluating the stature of the auditor is a horrible proxy for DD. It is not the job of the auditor to find fraud. IF fraud is being committed by insiders, auditors would likely not know about it. Because of the recent stink however, I could envision KPMG digging a little deeper, and if they have any doubts, dropping the client. Then the party is truly over.

    Like I said, I am long, but it's getting harder to beat back these nagging doubts.

  • Report this Comment On March 30, 2011, at 12:17 PM, maddrp wrote:

    This article is disappointing. In my opinion, the author of this article, as well as previous articles from the editors of Motley Fool, have done a disservice to subscribers, by saying anything other than screaming "JUMP" when discussing Yong. Although recent articles have referred to being cautious, that isn't good enough when it comes to a stock with such a weak price trend, and the perception (real or unreal) of an audit problem.

  • Report this Comment On March 30, 2011, at 2:32 PM, john795806 wrote:

    Referring to the CCME "perfect stock" article is a bit misleading. In it, MF rates it only 5 of 10, mentions its potential problems, and has a link to an article discussing fraud concerns.

    http://www.fool.com/investing/international/2011/03/10/is-fo...

  • Report this Comment On March 30, 2011, at 2:37 PM, 123spot wrote:

    Thanks, Dan. I had read the Hanson article, but didn't recall the last paragraph where he shows recent follow-up with the company and that he has bought more Yong, 'Nuff said.

  • Report this Comment On March 30, 2011, at 2:40 PM, john795806 wrote:

    Buffalonate, I'm not sure what is unreasonable about increasing from 1000 to 13000 stores in the course of a year. I work as an agronomist in a developing country (Uganda), not nearly as large as China. Here, most agricultural input suppliers have very small shops--something more akin to a stall. I commonly see new products hitting all of them at once. If the distributor has whatever it is, they'll buy a few units and see how it moves--very low risk. It's not as if Yongye has to visit every shop. "Branding" that shop can be as simple as throwing in a poster in the local language with a farmer testimonial to introduce farmers to the product and encourage sales. This is common practice. Their shops (stalls) are plastered with them.

  • Report this Comment On March 30, 2011, at 7:04 PM, goldminingXpert wrote:

    It's unreasonable because YONG said they hire one sales & support staff for every 3-10 stores (2009 10-K) and yet they've branded 23,000 new stores and hired less than 50 new sales & support employees. (less than 120 total now)

    Go refute my article if you are so confident that YONG is a good stock.

  • Report this Comment On March 31, 2011, at 9:22 AM, john795806 wrote:

    goldminingexpert--can you provide me a link to Yongye's 2009 10-K?

    Thanks!

  • Report this Comment On March 31, 2011, at 10:51 AM, buffalonate wrote:

    They went from having their product in 1000 stores to 23000 stores in 2 years. That doesn't seem fishy to you. If they did improve distribution that much why is their profit not infinitely higher. Their revenue is 5 times higher than it was 2 years ago but their distribution has increased 23 times over. Their numbers just don't seem to add up.

  • Report this Comment On March 31, 2011, at 11:07 AM, goldminingXpert wrote:

    Here http://google.brand.edgar-online.com/EFX_dll/EDGARpro.dll?Fe...

    Page 12 is the one with the quote on it that I referenced.

  • Report this Comment On March 31, 2011, at 10:50 PM, john795806 wrote:

    goldminingXpert: the section reads as follows:

    In conjunction with our distributors, we have established verbal agreements with 1,125 independently owned agricultural stores to operate in our branded store network. By June 30, 2008, we had 775 of these stores in our network and by December 31, 2008, had added an additional 350 of these independent stores to our network on a trial basis. These stores are dedicated to selling our product in their market location. Our sales staff is trained to work with our branded stores, and distributor network to ensure that our customers receive the right product and after-sales support. We overlay this sales and support network on top of our store and distributor network in a way that our sales and support staff are project managers who oversee three to ten stores each depending upon their region and capability level. They in turn hire contractors to assist them in various areas to ensure enough coverage exists in each area.

    Did you catch the phrases "trial basis" and "they in turn hire contractors to ensure enough coverage"? This was reporting on 2008 activities, when Yongye was just scaling up. More importantly, as the one who wrote the article, did you query Yongye (as a reasonable researcher should have) to get a clarification and to address your concern? That's your responsibility as a writer.

    At the end of Yongye's last response to your article, they provide 3 contacts to address investor concerns. I would encourage you, or anyone else with concerns about Yongye's business, to utilize those contacts--BEFORE going to press.

  • Report this Comment On April 01, 2011, at 12:45 AM, goldminingXpert wrote:

    They include contractors in the employee count (see the explanation for YONG not apparently having enough manufacturing staff in 2010) -- so your explanation doesn't seem to work.

    I have spoken with YONG IR, and also with YONG's CFO twice.

  • Report this Comment On April 01, 2011, at 8:16 AM, john795806 wrote:

    And his answers to the above inquiries were...?

  • Report this Comment On April 01, 2011, at 11:18 AM, goldminingXpert wrote:

    You can call him yourself.

  • Report this Comment On April 01, 2011, at 11:35 AM, RegLeCrisp wrote:

    Why not answer the question? You made a point of saying you spoke to him, what did he say? What's his number? I'll call him.

  • Report this Comment On April 01, 2011, at 12:24 PM, TopDogPicker wrote:

    If it ain't negative don't share it. Coz' I need to get that stock cheap. U got that GMX? Hahahaha

  • Report this Comment On April 01, 2011, at 3:11 PM, john795806 wrote:

    It'a apparent that Ian Bezek (goldminingxpert) never asked these questions of anyone at Yongye, and never consulted anyone at Yongye on his ill-conceived analysis, before putting pen to paper and taking it to press. Accusation by innuendo is easy and has its own motivations. Research isn't so easy, and involves seeking information from all sides.

  • Report this Comment On April 01, 2011, at 3:36 PM, fangzhouzi111 wrote:

    If company spent money to delete evidence, it is more likely a total fraud. Facts will be out shortly.

  • Report this Comment On April 02, 2011, at 2:31 AM, steve51864 wrote:

    I just got burned with CCME, bought after Global Hunter's positive article came out. Now, I am really skittish about YONG. I just did a Chinese word search on the product "Shengminsu" and it does seem that the products, (unlike CCME's buses), are quite well-known, at least in media. I also checked out a forum, (all in Chinese), where the workers for YONG debating someone in another similar ag. co. After reading these Chinese media reporting, as well as the forum, my initial perceptions are:

    1. The product may or may not be as effective as they claim to be. Even if it is as effective as Snake oil or gasoline additive, hey, it's a product.

    2. The founder is quite charismatic, and their business model seems "Amway-ish" to me. The forum talks about these mom & pop's stores (or stalls), getting a free small car by selling, (or pushing), certain amount of sales figure, or getting more stores to join in the chain.

    3. The businese does try to give back to the poor rural countryside. In the desert area in Mongolia, they are very welcomed and embraced by the government. And in China, if you have government support, you are good to go. However, the government can turn on you overnight, if there is something "wrong" with you.

    I have only a few hundred shares, bought under 8. Right now, I just hope Tim Hanson doesn't turn out to be another Ping Luo of Global Hunter.

  • Report this Comment On April 02, 2011, at 2:32 AM, TopDogPicker wrote:

    fangzhouzi111: You're the wanted man on the Yahoo message boards. What were you thinking when you emailed people directly and trying to persuade them to sell their YONG shares? You sound awfully desperate. I'm surprised to see you posting here now. I thought you would run for cover by now. If you want the stock to drop just post your findings on the boards. Why do this private emailing? You looking for an intimate relationship or what? And what's this "spent money to delete evidence". It's not strong enough to drop the stock, especially coming from you.

  • Report this Comment On April 02, 2011, at 9:38 AM, fangzhouzi111 wrote:

    You want the facts, you will get them shortly. Longs were warned.

    If you don't believe that company is deleting the evidence, check previous message in Yahoo board, click the links, to see what happened. If company is legit, why did they delete the hiring ads in Shandong yesterday?

    We did not publish them because it takes time to summarize all of the facts. YONG is such a fraud that it takes time and efforts to pull all of the facts together, but it is coming.

  • Report this Comment On April 02, 2011, at 12:50 PM, TopDogPicker wrote:

    The links were recruitment ads. Wouldn't hiring be good news? Please do hurry, the April puts are expiring soon. =)

  • Report this Comment On April 02, 2011, at 1:39 PM, fangzhouzi111 wrote:

    Unbelivable, how can you do investing? Read the ads, it said NongXiang is the subsidiary of YONGYE Group, and is the Shandong Province distributor. That's the reason YONG immediately deleted the ads, even though it is only couple weeks old.

    How can that be? If as YONG claimed: all of the province-level distributors are unrelated independant distributors, but why every province-level distributor is YONGYE Group's entity?

    You will know the answer soon.

  • Report this Comment On April 05, 2011, at 10:23 AM, RegLeCrisp wrote:

    Okay Fangzhou, we've been counting the seconds...Enlighten us! What a YONG strange trip it's been.

  • Report this Comment On April 05, 2011, at 10:58 AM, buffalonate wrote:

    Yongye stock is in a death spiral.

  • Report this Comment On April 05, 2011, at 3:52 PM, MAURIZIO400 wrote:

    it is in the human nature to see the exterior world thru the filters of one's own mind. it is just human nature to perceive and understand most readily those things that are most like self. thus the honest and truthful has hard time to conceive of fraud and deceit; conversely the deceitful and dishonest looks about and sees fraud and deceit in every corner. truth is not sympathetic to the criminal mind, it is a hard fact,hard to swallow and reason with for the one that believes in honesty honor and truth. it is pointless to try to argue facts with the criminally inclined, tem just don't get there. Aesop would say that it is not for sheeps to argue with wolves,

    and Dante would say do not concern yourself with them but glance upon them and follow your course.

  • Report this Comment On April 05, 2011, at 4:00 PM, MAURIZIO400 wrote:

    topdog picker

    you are a funny fella!

    lol!

    but i do not see 'em lafin...

    well qed man, qed!

    no sense of humor either in theyr district...

  • Report this Comment On April 07, 2011, at 7:42 PM, buffalonate wrote:

    Where are all those people that were excited to get YONG at $6? Now you can get it at $5.40 what a steal. I hope the stupid money piles into this one so I can laugh when it goes to zero. Timber!!!

  • Report this Comment On April 08, 2011, at 2:31 PM, BigTimeRook wrote:

    down down down.

  • Report this Comment On April 08, 2011, at 2:34 PM, Momentum21 wrote:

    not so fast my friend...here she comes...

    I bought back in at 4.50 to keep the debate interesting... : )

  • Report this Comment On April 08, 2011, at 3:41 PM, TopDogPicker wrote:

    Momentum21: Great minds think alike! One more time!

  • Report this Comment On April 08, 2011, at 11:56 PM, goldminingXpert wrote:

    Momentum: Do the letters DJSP ring a bell for you?

    At least we agree that JBLU is an outperform...

  • Report this Comment On April 09, 2011, at 4:43 PM, Momentum21 wrote:

    gmx: are you taunting me? : )

    DJSP won't be the last ticker that beelines to zero on me. It is a little different situation than YONG but I always leave room for the possibility that any holding/trade can arrive at the same place.

    I realize I am not omniscient and only try my best to navigate the probabilities over a long stretch of time.

    You seem to take more of a black or white approach with your pitches, which might lead some to assume that you do that with your investments.

    there is no free money. you won't see oversize returns when the coast is clear flag is being waved.

    Does March 2009 ring a bell to you? ; )

  • Report this Comment On April 11, 2011, at 2:57 AM, Potbeagle wrote:

    goldminingXpert (Ian Bezek) is a Colorado State University graduate of 2010 with a major in economics...How can anyone put so much weight on anything this amateur says???

    Blows my mind.

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