Did you check out China Finance Online's
I was only able to find the stock referred to twice in our site's deep pool of editorial content, here and here. Both times, Rich Smith mentioned the company in passing, on the way to telling grander market tales.
Well, let's give the company a bit longer to bake under the heat lamp this time. China Finance Online's quarterly report was pretty impressive. Revenue soared 184% to $4 million. Earnings clocked in at $0.04 per ADS, or $0.06 per ADS before stock-based compensation. Don't bother stacking that up against Wall Street's expectations, though. None of the major analysts spared the time to model out profit projections.
That kind of barren playing field may be risky for investors like you and me, but it can also conceal golden opportunities. To make the most of this one, you've got to understand what China Finance Online does, and why it packs upside potential.
Warming up to the three hot buzzwords
China Finance Online provides financial information on Chinese stocks. Even with yesterday's market slide in response to a new trading tax, it's safe to say that mainland China and outside investors are hungry to brush up on their stock-picking skills. Through its jrj.com site and its stockstar.com wireless service, China Finance Online aims to enlighten retail and institutional investors.
The company has 6.6 million registered users, with 31,700 aboard as paying subscribers. Remember that, because China Finance Online is mostly a play on financial subscription services right now. Just 6% of the quarter's revenue came from online advertising, making one wonder whether it might do better by monetizing freeloaders' traffic with well-placed Baidu.com
But the company doesn't need my two cents to grow. It expects this past quarter's robust growth to continue in the future, too. China Finance Online is providing top-line guidance of $5.3 million to $5.5 million in revenues for the current quarter. If it is able to keep up that heady sequential pace, it would top $25 million in revenue for all of 2007.
The price-to-sales ratio for the trailing 12 months clocks in at 25. However, using $25 million as the top-line, that price-to-sales ratio drops significantly to eight. If paying eight times expected revenue still seems pricey, keep two things in mind here:
- Like other Chinese growth stocks, this company produces high net margins.
- With $49.5 million in cash, the multiple shrinks to just six times revenue on an enterprise value basis.
Still not convinced? Let's look at some of the trailing and forward top-line multiples fetched by some of the Chinese growth stocks we recommend in our Foolish newsletters.
|
Trailing Price/Sales |
Forward Price/Sales |
|
|---|---|---|
|
Baidu.com |
35 |
23 |
|
Ctrip.com |
22 |
17 |
|
New Oriental Education |
13 |
N/A |
Make money with the moneymaker
China Finance Online went public three years ago at $13, but it's trading well below that mark today. You don't need to jog your memory to find another broken $13 IPO looking to cash in on China's financial enlightenment. Xinhua Finance Media
The difference here is that China Finance Online isn't anchored by scandal and perhaps unjustified media bashings, the way Xinhua has been in recent weeks. This company is simply ignored, even though it's actually doubled over the past six months.
That growth doesn't mean it's overvalued, or even in fashion. Other Chinese content providers, including weekly employment listings publisher 51job
That's fine. There's still fun to be had in an empty playground. If growth doesn't wow the cynics, perhaps the company can add one more buzzword to its name.
China Finance Chipotle Online? ChinaQuantive Finance Online?
The possibilities are almost as vast as the opportunities.
Baidu is a Rule Breakers newsletter recommendation. Ctrip is a Hidden Gems stock pick. You'll find several tempting international stock ideas in the new Global Gains premium stock research service, including active pick New Oriental Education.
Global Gains lead analyst Bill Mann departs for China, India, and Taiwan on June 2 in search of new investment opportunities in some of the world's fastest-growing economies. Get updates and analysis live from the field by sending Bill an email at [email protected].
Longtime Fool contributor Rick Munarriz feels that China still offers great opportunities for growth investors, as long as you're buying the right companies. He's 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.
