With the Shanghai index plunging 20.6% last week, some China small-cap stocks are now trading at attractive valuations. One of my favorites is China Green Agriculture (AMEX: CGA).China Green Agriculture is fertilizer company based in Xian, China that has been on the rise. Shares are up 286% year-to-date as investors gobbled up the stock. The most recent financial results, released in May, showed a 99% increase in revenues, and a similarly impressive 133% increase in net income.
Agriculture is a high growth industry in China, as consolidation, organic growth, and capital improvements result in more productive companies and impressive financial results. With continued population increases, and declining farmland as urban areas expand, there healthy tailwinds should assure continued growth of the agriculture industry in China.
China Green Agriculture is expanding production facilities and recently raised nearly $29 million, which should fuel future expansion and result in improved operating margins. The company also expects that fiscal 2009 revenues will be above previous guidance of $34 million.
Shares of China Green Energy pulled back from a recent high of $14.59 last week, as China stocks retreated. Technically the stock has strong support at $11, and is unlikely to go back to the single digits. Look for the stock to trade in the $11 - $15 range in the coming weeks.
The next big event on the horizon is fiscal 2009 financial results, which will be released in mid-September. While this stock is likely to be range-bound for the next month, I expect it could break out to $18 - $20 per share if those financial results are ahead of expectations. Investors should use the pullback to buy shares of this China growth stock at an attractive PE multiple of 17.
Ian Wyatt is the Chief Investment Strategist of SmallCapInvestor.com and author of the book, The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks.
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