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China Green Agriculture (CGA)

June 9th, 2009 · 2 Comments

ow here is a fertilizer stock with a difference. It’s been selling off this morning, but unlike some, we see this as an opportunity.

The fertilizer stocks are hot, and with good reason. World population grows, diets change which requires even more foodstock to grow (it requires eight times the amount of grain to feed a cow for it’s meat than the caloric equivalent of grain for human consumption). Top soils are degrading in many parts.

China Green Agriculture actually has a nice answer to these problems. A environmentally friendly fertilizer. Here, from the 2008 year-end report

  • Humic acid is an essential natural, organic ingredient for a balanced, fertile soil, and it is one of the major constituents of organic matter. Techteam [one of two daughter companies] has one of the most advanced automated humic acid production lines in China. It has a multi-tiered line of 119 fertilizer products. We believe that we are one of the top producers and suppliers of humic acid organic liquid compound fertilizer in China [10Kp4]

Here are some of the rather attractive metrics:

  • Insiders own 61%
  • Cash $13.63M, Debt $3.68M
  • Operating margin 44.61%
  • Revenue growth 99.4%
  • Earnings growth 132.7%

So, what is causing the sell-off this morning? Well, they announced a shelf-registration for $50M. Looking at the metrics above, we’re a bit puzzled as to the need of this. Their finance situation seems more than healthy. They do stress that at present, they have no intention of using it, but this registration gives them the flexibility to do so in the future. Perhaps they see some take-over targets. One could also say that the rather rapid expantion of this company could need more financing, although up to date, they have been managing very well.

We see the sell-off as an opportunity and advice you to buy at $6.5.

Tags: CGA

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