Acquisitions continue to hurt American Oriental Bioengineering's (NYSE:AOB) earnings-per-share growth. But honestly, who's going to complain?
The traditional Chinese medicine maker saw revenue increase 62% year over year, thanks in part to acquisitions, although organic growth still came in at a decent 23%.
Even with lower margins -- mainly owing to products inherited in the acquisitions -- the company was able to grow net income at a 38% clip. If American Oriental plans on becoming the Johnson & Johnson (NYSE:JNJ) of China, it'll need to get a little more efficient. But for now, the resulting contributions to the bottom line are making the acquisitions worth it.
While margins will likely continue to decrease with the addition of AOB's two newest acquisitions, the good news for investors is that the dilution should be done, since the company isn't planning any more secondary offerings in the next year. If the company pursues more acquisitions, it'll use its current $220 million to make the purchases. That's good, because while net income itself grew 38% as noted, the company registered only 31% growth on a diluted earnings per share level. Investors generally don't like that kind of lag.
Nevertheless, American Oriental is really in a sweet spot right now, poised to take advantage of China's new focus on rural health care. That could also be a boon to companies like Mindray Medical (NYSE:MR) and China Medical Technologies (NASDAQ:CMED), which sell things like drugs, diagnostic tests, and medical devices.
Shares of Chinese stocks in general, including American Oriental, China Mobile (NYSE:CHL), and Aluminum Corp. of China (NYSE:ACH), have been pummeled over the last year, but their plunges can't continue forever. Eventually, the global economy will get back on its feet, bringing China along with it, and we'll see Chinese stocks growing again. In the meantime, its distressed markets seem to offer savvy investors several bargain opportunities.
