I've been a critic of Yongye International
When the facts change, I change my opinion
Why do I say this? Two reasons. First, as Yongye fell from grace, its stock price fell with it, becoming cheaper by the day. Second, my main worry about Yongye is no longer in effect. At long, long last, Yongye is generating cash flow.
Last month, Yongye announced its full-year results for fiscal 2010. Not only did it emerge into positive "operating cash flow" territory. It actually generated $4.9 million worth of free cash flow, and about a week ago, management announced it's on track to repeat the feat in 2011. In a preliminary report for the first quarter of 2011, Yongye confirmed its cash flow was positive, and sales on track for near-50% growth this year.
This suggests free cash flow could rise as high as $7.5 million by year's end, leaving us with an enterprise valued at just 27 times the cash it churns out in a year -- and growing at a 50% clip. The news prompted praise from market researcher The Bedford Report, which compared Yongye favorably to the performance at larger ag-market player Monsanto
With free cash flow now in effect, my major concern regarding Yongye has been put to bed. Combined with a more attractive stock price, I now feel free to heed the advice of Fools who've been expounding on Yongye's attractiveness for years, and buy the shares for my own account. (And I have.)
That said, Chinese micro caps aren't for everyone. Indeed, conservative investors might prefer to wait awhile, and give Yongye time to prove it can both earn and keep earning cash profits before jumping in. If that's your preferred approach, feel free to add the stock to your Watchlist. Read along as we track Yongye's progress, and don't make the commitment until it feels right for you.
China Green Agriculture and Yongye International are Motley Fool Global Gains recommendations. Motley Fool Options has recommended a synthetic long position on Monsanto. The Fool owns shares of China Green Agriculture and Yongye International.
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