We haven’t written for quite some time about this company (simply because there wasn’t much news to tell apart from a collaboration with IBM), but that doesn’t mean we have changed our opinion. We see a profitable trade at the minimum, and probably quite a bit more…
We still think it’s a buy, and now is probably a very good time as well. Next Monday (April 27), they will publish results and in the past, shortly before and after has always seen an increase in price and volume. Even as a short-term trade, this could pay-off handsomely (although perhaps not quite the 50% we scored in a few days with Manas).
Some additional reasons:
- Since new contracts precede service income by a year, visibility of earnings is pretty high, the chance of really nasty surprises is rather slim, as this year’s service income is a function of previously won contracts (which are known and growing)
- Chinese retail is one of the few markets in the world which are still growing at a very crisp pace. It is actual policy of the Chinese authorities to replace the slumping export demand with domestic investment and consumption. The Chinese retail market is set to become the second largest market in the world by 2010
- eFuture’s specialism is in the retail sector, where they provide software products and services (mostly in supply-chain management) to a bevy of big department stores and big international companies, we have little reason to think that growth has suddenly diminished there, especially considering that China has some way to go in catching up with supply-chain logistics efficiency compared to richer economies.
- Most importantly perhaps, these shares went to market in an IPO for $6 a share. Despite taking over four companies, developing three B2B initiatives, stellar growth and an excellent financial position, the shares are back at that level. The longer this situation lasts, the more dramatic the eventual catch-up will be.
- Moreover, at less than 1x sales for 2008, these shares are dirt cheap. They had $4.8M in cash (and only $1M in debt as last year, they’ve managed to retire all but $1M of a convertible) on hand after Q3, and Q4 is by far their best quarter traditionally.
- We will also find out whether their share buy-back program (they were going to buy-back up to 15% of their outstanding shares, which are minimal with 3.3M anyway) has been completed. Either the number of outstanding shares has been reduced significantly or there is still a lot of buying to come, so this is a good thing either way.
Here is some of our previous reporting: