Why Did Yongye Have Such a Terrible 2011?

As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Yongye International (Nasdaq: YONG  ) . With so many small Chinese companies facing allegations of fraud and other misbehavior, Yongye's shares have gotten caught up in the general skepticism. Yet at least on their face, the company's financial reports tell a much different picture, as business in the fertilizer industry has been phenomenal. Below, I'll take a closer look at the events that moved Yongye's shares this year.

Stats on Yongye

Year-to-Date Stock Return (53.5%)
Market Cap $198 million
1-Year Revenue Growth 90.4%
1-Year Earnings Growth 93.7%
CAPS Rating ***

Source: S&P Capital IQ.

How did Yongye do this year?
Yongye gives a great example of how the prospects of a business and its stock price don't always track together. On one hand, fertilizer companies around the world, including Terra Nitrogen (NYSE: TNH  ) , PotashCorp (NYSE: POT  ) , and CVR Partners (NYSE: UAN  ) , have seen very strong revenue growth as hungry emerging-market nations seek to improve their crop yields. In particular, Yongye's presence in China, along with China Green Agriculture, gives it a home-field advantage in the emerging giant.

But Yongye faced the same allegations of fraud that brought down other Chinese companies. Those allegations have kept a lid on the share price, even after Morgan Stanley (NYSE: MS  ) made a $50 million investment in Yongye preferred shares. While that's a vote of confidence, it also represents a potential dilutive event, with the preferred stock convertible at $8.80 per share.

Moreover, Yongye faces long-term competition. Monsanto (NYSE: MON  ) and Dow Chemical (NYSE: DOW  ) are both looking to increase penetration in China. Unless Yongye can keep growing quickly, it may eventually lose out to its much bigger rivals.

Despite its potential, Yongye faces some substantial risks. If you like emerging market stocks, we have a stock idea you may feel more secure about. In fact, we've made it our pick for the top stock for 2012. Read all about it in this Motley Fool special free report today.

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

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Yongye. Motley Fool newsletter services have recommended buying shares of China Green Agriculture and Yongye, as well as creating a synthetic long position in Monsanto. 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.

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