I have to admit missing the September initial public offering (IPO) for 51job (Nasdaq: JOBS), China's leading integrated human resource services provider. Until today, this small-cap stock (its value at midday was $470 million) had not garnered any significant electronic print at The Motley Fool, either.
The promise here is made in matchmaking heaven -- allowing China's employers to find the best employees from China's billions. As good as that sounds, the prospectus listed pages of warnings about the investment risk involved with holding this Cayman Islands-based company.
The dream of all those job matches sent the stock soaring. The IPO share price, originally pegged at $11 to $13, ended up at $14. The stock opened for market trading at $18.98 and closed at $21.15 -- a staggering 51% gain on its first day of public trading.
The explosion did not end there. Three months later, the stock hit its all-time high of $55.55 a share -- almost four times the IPO price. Talk about a hot stock!
A month later, the stock had already cooled 21% when the company dropped a bombshell. Fourth-quarter high-end earnings guidance was dropped from .44 to .27 yuan a share. Revenue, previously estimated to be 140 million yuan, would be 121 million or less. The stock opened 37% lower amid a wave of lawsuits and one brokerage downgrade.
The stock has been trading lower ever since and, with the announcement of fourth-quarter earnings today, is trading (at midday) at a new low of $16.80, down 13.5% from the previous close. While sales reached the high end of guidance, per-share earnings came several hundredths of a yuan below. Yikes! And, based on operating results, investors have sent the stock crashing. Only IPO buyers are showing a profit for now.
51job is in an industry with a low barrier to entry. Although the company has operations in 20 cities, each city has intense local competition. There are also competitors Sina (Nasdaq: SINA) and Sohu.com (Nasdaq: SOHU) -- and capital-rich Monster Worldwide (Nasdaq: MNST), which decided the best way to enter China's marketplace was by buying 40% of ChinaHR.com shares.
The three analysts who follow 51job expect the company to earn $.54 a share in 2005. That prices the stock at a rich 31 times forward earnings for a company with a short but dismal record of forecasting both growth and earnings.
Remember that this company's IPO was originally priced at $11 to $13 a share. That, in my opinion, is a reasonable target for this stock in the near term.
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click
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