Great Call on American Express! What's Next?

With a near-60% jump in the S&P 500 since March 9 of last year, the frantic atmosphere of that period is already beginning to seem like a nightmare that we've woken up from.

This is particularly true for companies under the "financial services" heading, as the continued existence of many of the financial giants seemed to be touch and go for a while. But if American Express' (NYSE:AXP) fourth-quarter earnings report didn't put a shiny gold star next to the credit card company's name, it at least showed that the company may be back on the right track.

While total revenue was still down from the fourth quarter of 2008, the bottom line was significantly better -- to the tune of 198%. Amex CEO Ken Chenault also highlighted that the company has maintained its dividend through the tough times; a very shareholder-friendly move.

On the Motley Fool CAPS community, though, members aren't totally sold on Amex's stock. It carries a middle-of-the-road three-star rating.

Despite the stock's ho-hum rating, quite a number of CAPS members have scored big by betting on Amex. Stocki711 is the CAPS score leader on Amex and has nabbed more than 240 points thanks to an outperform call made March 6 last year.

Stocki711 is one of CAPS' All-Stars -- players with a rating of 80 or greater -- and has managed a stock-picking accuracy of 61% while racking up nearly 5,200 points. Amex isn't this player's only great call. Here's a look at a few of the other prescient picks:

Data from CAPS.

So what has this investor been looking at more recently? Here are a few of the most recent calls on CAPS:

Data from CAPS.

While not all of these picks may pan out, they could be a good place to start further research. I decided to take a closer look at China Pharma Holdings.

An overlooked rocket stock?
The reasons China Pharma might hop onto an investor's radar are troublingly blatant. Why troublingly? Because, as we all know, when something looks too good to be true, it often is.

But first, let's review why this stock might look as good as gold. Between 2005 and the 12 months ending in September, China Pharma's revenue bolted upward by an amazing 561%. The company's balance sheet, meanwhile, sports a mere $3.8 million in debt on total shareholder equity of $85 million. And we can't overlook that the company operates in China, which has been growing so fast that officials have been frantically trying to throw on the brakes.

And despite all of this, China Pharma's stock appears to be trading at an absolute bargain price. Based on expected 2010 earnings per share, the stock's price-to-earnings ratio is 6.4.

Or something else entirely?
If so much of this is right out in the open, though, we may want to ask why investors haven't already been flocking to the stock. It's quite possible that it's simply just small and overlooked, which is often a recipe for a future outperformer.

However, a quick read through the company's recent financial reports raised more than a few red flags for me. Right off the bat, the company's history hardly makes for confidence-building reading material. Rather than rehash the details of past failed business ventures, I'll suggest that potential investors be sure to read the most recent annual report.

Past that, the company's cash flow has badly lagged its profits. For the 12 months ending in September, the company reported $21 million in net income, but only $8.9 million made its way to operating cash flow. While management has said that it's working on fixing the main problem -- accounts receivable -- the company's inability to turn profits into cash continues to be worrisome.

In addition, the company experiences significant customer concentration. For the nine months ending in September, two customers accounted for 37% of sales. While some companies do quite well despite concentration issues, it can often be a source of investor heartburn.

And finally, it's important to note that in its current form, this company isn't about to be China's answer to Merck (NYSE:MRK). China Pharma doesn't do any research and development of its own. Rather, it relies on the research of partner organizations and purchases the work of others.

In short, while CAPS members seem to be hot to trot on this stock, I'm finding it pretty comfortable on the sidelines.

But here's the important question: What's your take? Is China Pharma ready to become a multibagger? Or are investors cautious about it for a reason? Get in the action by clicking over to CAPS. It's absolutely free and already has more than 150,000 stock pickers chipping in to find the best stocks out there.

I'm not sure if you can count on China Pharma, but if you're looking for companies that you can count on, try those that pay you back.