Biostar and Gulf Resources
posted by The Traveller on Sunday, August 15, 2010

Biostar Pharmaceuticals (BSPM) is currently trading at $2.84, down 36.19% for the year and down 48.46% from its April 23 high at $5.51. The Trading China Tracker Score is 9 (Buy).

Biostar scheduled their Q2 conference call for Tuesday, August 17, but quarterly results are already out in a 10-Q filing. The company reported 46% revenue growth with 28% EPS growth year-over-year, overall solid results which confirm that BSPM is on track to earn about $0.65 a share for 2010. Biostar is still heavily dependent on sales of just one product, their Hepatitis B OTC drug 'Xin Aoxing' where the company generated 75% of the quarterly gross profit from. That makes the stock vulnerable from any possibly disruptive rumours regarding this product, as the temporary marketing ban in April. However, with a current P/E-ratio of 4.5 and new products in the pipeline, the stock looks attractively priced at current levels.

Gulf Resources (GFRE) is currently trading at $8.72, down 25.22% for the year and down 33.44% from its March 8 high at $13.10. The Trading China Tracker Score is 3 (Hold).

Chemical company Gulf Resources is one of the largest producers of bromine in China. The company has been aggressively acquiring new bromine properties in their region and plans to continue doing so for the foreseeable future. It has an open shelf for up to $120 million and the money is likely intended to finance further bromine purchases. GFRE's business is very profitable and the company had positive cash flow from operating activities of almost $40 million in 2009.

Gulf Resources announced preliminary second quarter results last week when they moved their conference call and 10-Q filing to tomorrow, Monday August 16. Those preliminary numbers look quite excellent:

The company announced net revenues to range between $43 and $46 million, 50% more than in the second quarter of 2009 and 18% higher than the analyst consensus of $37.5 million. For earnings the company predicted between $0.44 and $0.47 per diluted share, up 55% from 2009's $0.29 and beating analyst estimates of $0.34 by a staggering 30%. The stock is pretty much flat since the pre-announcement, however this might change with Monday's earnings call. Most investors seem to be afraid of the mixed shelf offering but I believe the company has proven that previous acquisitions have been highly accretive and generated shareholder value with significant EPS growth.

An article on Seeking Alpha this weekend speculates that Gulf Resources might itself be an acquisition target and that the delay of the 10-Q filing and conference call might be related to a possibly important announcement as the company's board might need that additional time to consider an offer. That is of course a wild guess from the author's side, but I do support the view that GFRE with its growth prospects, sizable cash flow and significant bromine resources would be a nice fit for a bigger player in the chemical industry.

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3 Comments:

At August 15, 2010 5:51 pm , Anonymous Anonymous said...

The author of the Seeking Alpha article was correct on Gulf's Q2 financial results when the analysts got it all wrong. They missed numbers by a staggering 30%, when Jason hit it on the head. I think calling Gulf Resources being subject to its own acquisition offer a wild guess is a bit of a reach. You could have said his $46 million Q2 revenue target was a wild guess, but he was right.

 
At August 15, 2010 5:52 pm , Anonymous Anonymous said...

http://www.marketintellisearch.com/articles/1040460.html

NEW YORK (Market Intellisearch) -- Gulf Resources options saw heavy call activity today. A total of 573 call and 52 put contracts were traded raising a 90 day record high call volume alert. Today's traded Put/Call ratio is 0.09. There were 11.02 calls traded for each put contract.

Options can be used as predictors of stock behavior. Investors can use Put/Call ratios as technical indicators to read for signs of institutional sentiment. The Put/Call ratios offer insight to investors and can be used as either a direct or contrarian indicator for trading decisions. Unusual volume provides reliable clues that the stock is expected to make a move.

Shares of Gulf Resources gained $0.35 (+4.18%) to $8.72. The stock closed at $8.37 in the last trading session and today the shares of GFRE opened at $8.44. So far today, the stock has hit a low of $8.40 and high of $8.86. The current trading volume of 92,588 is less than average volume of 123,203 shares. GFRE is trading below the 50 day moving average and lower than the 200 day moving average. The stock's 52 week low is $1.07 and 52 week high is $14.94.

 
At August 15, 2010 6:20 pm , Blogger The Traveller said...

I have mentioned the Seeking Alpha article because the idea of GFRE becoming an acquisition target is valid in my opinion. A wild guess is that any such development might be announced as soon as tomorrow. I haven't seen any such hints from management. My point is that growth and fundamentals of GFRE alone do justify a deeper look into the company. You may want to position yourself based on fundamentals with the yet vague idea of them getting acquired in the future as an additional bonus.

 

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