Maybe Xinhua Finance Media
Xinhua rising is probably a strange sight to investors, who've seen the shares weaken since going public at $13 last month. The stock never traded above that mark, bottoming out at $9.54 two weeks ago. Shares are up more than 12% today, though, to $11 and change.
This morning's report is encouraging, though probably not as encouraging as you might think. Revenues shot up 133% to $16.7 million. Earnings clocked in at a zesty $12.6 million.
Wait a minute. 75% in net margins? That can't be right. Sure, kind taxation rates and low corporate overhead in China can create some pretty amazing opportunities there. NetEase.com
But Xinhua's media business has not come even close to being a high-margin endeavor in the past. The company generated operating margins of 12% and net margins of 5.7% last year. So what's the deal? Well, as impressive as $12.6 million sounds on the bottom line, the company recorded a $12.3 million tax accounting gain during the period. Xinhua would have been barely profitable without the deferred tax benefit, but that isn't as bad as you think. Wall Street figured that the company would post a loss for the period.
So even once you let the air out of the monster profitability, you're still left with a thriving company that's growing in China's television, radio, print, and advertising markets. That's a sweet place to be, given the country's booming economy and the exposure that China will get over the next year and as the 2008 Olympics head to town.
Yes, even after today's pop, the stock is still trading well below its IPO price. If Xinhua is able to string together a few more impressive quarters like today, it won't be long before that ceiling becomes a floor.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.