Before the Call: China Finance Online and Booted Up

Do you love The Motley Fool? Morningstar? Value Line? Each of these firms has, in its own way, made investing easier for individuals in the United States. Each has been recognized for its achievement with a spot in the Motley Fool Stock Advisor portfolio (except, you know, the Fool itself. That's sort of implied).

But what about investors abroad? Sure, Morningstar is starting to go international, but it's a big world, and within it, it seems logical that the biggest country should have its own online investor site. Enter China Finance Online (NASDAQ:JRJC), leading candidate for the title of "Chinese Morningstar," which reports its first-quarter 2008 earnings tomorrow.

We'll have time aplenty to dissect the specific numbers after the news comes out. But before we begin obsessing over the short-term progress at CFO (get it?), let's use these last few hours to review what investors think about it as a long-term investment. Our tool in this endeavor: Motley Fool CAPS, where we poll more than 105,000 investors for their views on more than 5,600 companies, CFO among them. Here's what Fools have to say about the company and its long-term prospects.

Up or down?
More than 600 investors have submitted ratings on CFO. Their verdict: "We know Morningstar. We read Morningstar. China Finance Online? You are no Morningstar."

Our best investors, the CAPS All-Stars, aren't exactly jumping up and down over CFO, splitting only 55/45 in favor of the company. This is not good, and it probably explains why CFO gets only a subpar two-star rating on CAPS -- an unusually weak result for a China play:

Wall Street vs. Main Street
Yet all three Wall Street analysts who follow the stock rate it a buy. Perhaps the fact that the stock has nearly tripled over the past year has something to do with this?

Bull pitch
The top-rated pro-CFO pitch on CAPS puts the "buy argument" simply. Writing last summer, danny008 summed up the stock in two words: "chinese & stocks ... As more and more people become educated and move to middle class. The need for financial information is going to increase exponentially."

Now, in theory I suppose I could argue with that ... but it would be against my interest to do so.

Bear pitch
Instead, let's allow one of the many bears on record against CFO to give it a growl. Expressing a common sentiment in CAPS-land, Terch argued back in September that CFO sports a "Sky high valuation based on a continuing bubble market in chinese equities, once that bubble bursts, this company will plummet, only a matter of time."

But how high is sky-high? Accurate financials aren't easy to come by for CFO, but here's what I do know. In the second half of last year, the company reported negative profits under GAAP, but at the same time, it generated around $15 million in free cash flow.

Naturally, CFO's P/E is not much of a measure as long as it reports negative profits. But if you run-rate out free cash flow for the second half of last year, I suspect you'll find CFO capable of generating some $30 million a year in free cash flow. To me, $478 million market capitalization doesn't look like an awful lot to pay for that kind of cash-generating prowess. All the same, tomorrow I'll be looking closely for proof that CFO can keep earning cash profits at that rate.

Who said that?
To learn more about the wise Fools who penned these words, examine their records (and see whether they know whereof they speak), and to explore the plethora of additional financial data we've put together on the company, just click here.