4-Star Stocks Poised to Pop: Duoyuan Global Water

Market-trouncing returns could be written in these five stars.

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Mar 22, 2011 at 12:00AM

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, water treatment products specialist Duoyuan Global Water (NYSE: DGW) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Duoyuan's business and see what CAPS investors are saying about the stock right now.

Duoyuan facts

Headquarters (Founded) Beijing, China (1992)
Market Cap $196.6 million
Industry Industrial machinery
Trailing-12-Month Revenue $151.09 million
Management Founder/Chairman/CEO Wenhua Guo
CFO Stephen Park
Trailing-12-Month Return on Equity 14.4%
Cash/Debt $155.5 million / $0
Competitors ITT (NYSE: ITT)
Dow Chemical (NYSE: DOW)
General Electric (NYSE: GE)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 96.5% of the 293 members who have rated Duoyuan believe the stock will outperform the S&P 500 going forward. These bulls include bizcbug7 and All-Star TSIF, who is ranked in the top 0.2% of our community.

Just two days ago, bizcbug7 touched on the stock's seemingly unwarranted price punishment:

Not a reverse merger. Positive free cash flow. eps persistence. Top flight CPA'S. Company related to [chairman] had accounting problems leading to this stock's price being crushed.

In fact, Duoyuan currently sports a particularly paltry forward P/E of 4.8. That represents a clear discount to gorilla competitors like ITT (11.2), Dow Chemical (11.0), and GE (12.2).

CAPS All-Star TSIF elaborates on the bargain opportunity:

I was hoping to get this timed to open when the price per share dropped $0.30 because Duoyuan Global Water's "sister" company, (same founders), Duoyuan Printing Inc (DYP) announced another possible accounting issue, this time with the SEC. I felt when DYP started taking a hit that part of it was unfair as it seemed to be around a few questionable accounts payable that are probably par for the course in their environment. ...

Duoyuan Global Water has not been accused of anything (yet), but ticked an all time low as questions of commonality/leadership, etc continue to linger. ...

They are 0.66 of Book value and have margins in the 20% ranges. All cash, no debt. ... They are and will be tainted, regardless, so cries of them reaching older highs in the $40 are very unlikely in the next few years, regardless of earnings, but they may be able to start the climb.

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