As Peter Cohan recently wrote, Warren Buffett believes that the Chinese stock market has overheated.

So how can investors profit, with possibly more upside than shorting the index? First, an analogy:

If you were in California during the late 1850s, and received a tip from the foremost gold expert in the world that the California Gold Rush was about to end, how might you seek to profit from it? If possible, I would try to find companies to short: the cottage industry of shops selling shovels and picks to would-be miners would be a prime target, if I could find such a publicly traded company.

This brings me to China Finance Online (NASDAQ: JRJC), a high-flyer trading at about 662 times trailing-twelve months' earnings. The company markets stock-tip newsletters to Chinese retail investors, through a really (not) innovative distribution system: telemarketing. Why that business is worth $700 million is beyond me.

The catalyst for the company/stock's decline could be a softening of the market. Everyone's excited about stocks because the market is up big. But if people start losing money, how many are going to want to cancel their subscription and find a new hobby? A lot.

The sort of financial information we all take for granted in the west is not quite so universally available in China. A leader in the business of correcting that condition is headquartered in Beijing.

China Finance Online (NASDAQ: JRJC) provides online financial data and analytics to customers in the People's Republic of China. The firm serves individual users and institutional clients with subscription-based packages that integrate financial and listed company information from multiple sources. Users can obtain financial news, research reports, real-time stock quotes and historical financial information for China's listed stocks, bonds and mutual funds. Database operations include search, retrieval, delivery, storage and analysis functions.

The stock popped in late September and early October on several instances of positive analyst commentary, word of a financial database development agreement with Tsinghua University, and a company announcement of favorable guidance. Management expected Q3 revenues of $7.1-7.5 million, versus prior guidance of $6.7-7.1 million and Street consensus of $6.75 million. The firm also anticipated FY08 revenues of $45-51 million, versus consensus of $40.87 million.

Citron Research, formerly known as StockLemon.com, brings to our attention China Finance Online Co. (ADR) (NASDAQ: JRJC), which sells a series of stock tip newsletters in China. After taking a look at the company, I have to agree with Citron's conclusions: This stock is heinously overvalued.

First a quick look at the numbers. This publisher of newsletters trades at more than 65 times sales with a price/earnings ratio of 873. Given that the company's business model is selling stock tip newsletters with an army of telemarketers, I can't even imagine what the company's barrier to entry is that makes it worth such an astronomical valuation -- a market cap of $925 million dollars.

As Stock Lemon points out, this is all on projected revenue of about $20 million for 2007: "Comparatively speaking TheStreet.com (NASDAQ: TSCM) generated $57 million in revenue and has a market cap of about 1/3rd this name."

Why is JRJC trading so high? It probably has something to do with investors' desire to find something that is tied to the Chinese stock market's rapid growth. But at this valuation, whatever it is, it sure as heck has nothing to do with rational thought.

JRJC looks like a pretty good short here.