Categorized | Commentary

China Green Agriculture Could Grow Your Portfolio: Headed for $15/share?

China Green Agriculture (CGA) distinguishes itself in this market not only by its niche, organic fertilizers, but by its compelling valuation. Despite a drop in shares driven by an additional public offering, the stock’s fundamentals can’t be ignored.

What if I described a stock with these metrics?

P/E: 12
Forward P/E: 8
PEG Ratio (5-year): 0.32
Profit Margin: 36%
Current Ratio: 4

Not only that, but the company is based in the world’s fastest growing economy and right now has a market capitalization of only $138 million. Even better, the company’s CEO owns more than 1/3 of the company – some serious skin in the game.

There is obviously no mystery here – this describes a real company: Xian, China-based China Green Agriculture [[CGA]], a developer, manufacturer and distributor of organic fertilizers.

China Green Agriculture is making news right now for its plans to sell an additional 3.5 million shares of stock at $7.15 each in a public offering to raise funds for the construction of new green-house facilities for research and development. This announcement is weighing on the stock – understandably so because in the short-term it is diluting existing shareholders and the offer is priced lower than the current trading price – but in the long-term this will only drive further growth by increasing the research pipeline.

Even with 3.5 million shares added to the 18.6 million already outstanding, China Green Agriculture offers an outrageous value.

The simple fact is additional share offerings are never ideal but if the money is being put to good use and the valuation remains attractive even after dilution then the drop the offering brings to the stock should be considered an opportunity to invest, not a concern.

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