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  #1  
Old 05-04-2012, 10:29 PM
undegaussable's Avatar
undegaussable undegaussable is offline
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Question Should I invest in a Chinese shoemaker?

I've been reading Ben Graham's The Intelligent Investor and he mentions that one can occasionally spot a great bargain stock where the market cap is less than the net working capital... so you're essentially getting the liquid assets of the company for free (or better).

Doing a little perusing I came across Chinese shoemaker Exceed Co Ltd (EDS). It's selling at $2.28 and there are about 25m shares outstanding, so the market cap is around $58m.

Exceed's 2011Q3 balance sheet shows total current assets of $283m and total liabilities of $39m. So that works out to a net working capital value around $9.75 per share!

This is a consistently profitable and rapidly growing company; it's been around 11 years and seems to be on the right track. I'm wondering why I shouldn't jump in with both feet on this one, why the stock price seems so out of wack. Possibilities:
  • Declining rate of EPS growth for a few quarters
  • Micro-cap company - flying under the radar of many investors?
  • Mistrust of Chinese accounting standards?

This one may not jump up overnight (although it did on Monday) but I'm thinking 5-10 years down the road it could still be going really strong, and investing at this $2.28 a share could be a real bargain.

But I wonder, am I missing something?
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  #2  
Old 05-04-2012, 10:33 PM
d123454321 d123454321 is offline
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Quote:
Originally Posted by undegaussable View Post
I've been reading Ben Graham's The Intelligent Investor and he mentions that one can occasionally spot a great bargain stock where the market cap is less than the net working capital... so you're essentially getting the liquid assets of the company for free (or better).

Doing a little perusing I came across Chinese shoemaker Exceed Co Ltd (EDS). It's selling at $2.28 and there are about 25m shares outstanding, so the market cap is around $58m.

Exceed's 2011Q3 balance sheet shows total current assets of $283m and total liabilities of $39m. So that works out to a net working capital value around $9.75 per share!

This is a consistently profitable and rapidly growing company; it's been around 11 years and seems to be on the right track. I'm wondering why I shouldn't jump in with both feet on this one, why the stock price seems so out of wack. Possibilities:
  • Declining rate of EPS growth for a few quarters
  • Micro-cap company - flying under the radar of many investors?
  • Mistrust of Chinese accounting standards?

This one may not jump up overnight (although it did on Monday) but I'm thinking 5-10 years down the road it could still be going really strong, and investing at this $2.28 a share could be a real bargain.

But I wonder, am I missing something?
I've seen many chinese stocks like this. Maybe people don't trust the books?

They say "$9.75 cash/share", doesn't mean they have that much.
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  #3  
Old 05-05-2012, 07:44 AM
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solarcurve solarcurve is offline
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even Paulson got taken by a chinese stock scam and he has a legion of analysts that constantly research his stocks. it's gonna be very hard for you to accurately determine if this is a chinese fraud or not, but that is pretty much the dilemma. if it's not, then certainly it is very undervalued. if it is, then it'll head to 0 and get delisted. Better off avoiding china completely, but at least the risk is less if you're dealing with a bigger, more well known china company. Risk of fraud is very high in a stock like EDS.
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Old 05-05-2012, 02:58 PM
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Dismal Science Dismal Science is offline
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I wouldn't take a chance. I don't trust Chinese companies given the amount of fraud. Especially smaller companies.
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  #5  
Old 05-05-2012, 11:30 PM
lulzEMH lulzEMH is offline
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Quote:
Originally Posted by undegaussable View Post
I've been reading Ben Graham's The Intelligent Investor and he mentions that one can occasionally spot a great bargain stock where the market cap is less than the net working capital... so you're essentially getting the liquid assets of the company for free (or better).

Doing a little perusing I came across Chinese shoemaker Exceed Co Ltd (EDS). It's selling at $2.28 and there are about 25m shares outstanding, so the market cap is around $58m.

Exceed's 2011Q3 balance sheet shows total current assets of $283m and total liabilities of $39m. So that works out to a net working capital value around $9.75 per share!

This is a consistently profitable and rapidly growing company; it's been around 11 years and seems to be on the right track. I'm wondering why I shouldn't jump in with both feet on this one, why the stock price seems so out of wack. Possibilities:
  • Declining rate of EPS growth for a few quarters
  • Micro-cap company - flying under the radar of many investors?
  • Mistrust of Chinese accounting standards?

This one may not jump up overnight (although it did on Monday) but I'm thinking 5-10 years down the road it could still be going really strong, and investing at this $2.28 a share could be a real bargain.

But I wonder, am I missing something?
EDS was covered by GEO. They are cooking the books. A hard to short fraud though. I have a smallish short position in them and intend to let it sit. Chinese listed companies should be avoided.

If they had the cash a no brainer route would be to buy back shares. ZSTN is another recently delisted fraud with large cash per share.

I believe it jumped on monday because it was the deadline for filing their annual 20f statement. They delayed earnings as they had problems getting it filed. Not sure who their auditor is but it hardly matters as most suck. fyi by most I mean ALL!

Last edited by lulzEMH; 05-05-2012 at 11:37 PM..
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  #6  
Old 05-05-2012, 11:40 PM
lulzEMH lulzEMH is offline
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Quote:
Originally Posted by Dismal Science View Post
I wouldn't take a chance. I don't trust Chinese companies given the amount of fraud. Especially smaller companies.
if by smaller you mean RTO vs IPO you are right... the magnitude of the fraud is larger. However, cooking the books is still very prevalent for IPO's as well. LFT was one... and the idea that bigger is safer is kind of nonsense. Bigger is better at it.... Sinoforest was large, Longtop was large ... the hong kong pieces of crap that are blowing up are large, fmcn is still ongoing. Chinese banks and investment firms will play along to f foreing investors. F china.
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  #7  
Old 05-07-2012, 09:29 AM
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undegaussable undegaussable is offline
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Interesting, thanks for cluing me in.
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