China Natural Gas, Inc. (CHNG) shares are trading on par with U.S. companies like XTO Energy Inc. (XTO) and EOG Resources, Inc. (EOG) despite stronger growth rates and a growing amount of cash in its coffers.
China Natural Gas, Inc. [[CHNG]], the first China-based natural gas company publicly traded in the U.S., may be trading at a premium to some of its U.S. peers, but it remains sharply undervalued given its growth rates and future prospects. In fact, a simple price-earnings to growth analysis suggests that the stock should be trading closer to $25 per share.
During the first quarter, China Natural Gas reported revenues that grew 31.9% to $14.96 million and net income that grew 49.6% to $4.2 million. Meanwhile, the company’s balance sheet is extremely robust with total assets of $123.18 million compared to just $5 million in liabilities. The company also reported cash of over $9 million, or $0.62 per share.
China Natural Gas’ true value lies in its cash flows from operations, which increased 78.1% to $6.23 million. After approximately $3 million in property and equipment expenses, this led to a $3.2 million net increase in cash and cash equivalents. Strong cash flows lead to increase cash on the books and negate the need to raise future funding from debt or especially equity.
Assuming no growth in earnings through the remainder of this year, China Natural Gas would be trading at approximately 3.5x projected earnings. And assuming growth rates of 10% going forward, this would equate to a price-earnings to growth ratio of under 0.4, which indicates that the stock is sharply undervalued. Based on this metric, a fair price would be closer to $25 per share.
In the end, China Natural Gas was only recently listed on the Nasdaq after moving up from the OTC-BB exchanges. As a result, many institutional investors have yet to discover this stock. Prudent investors may want to take a look at this stock if looking for a Chinese company that is profitable, growing and undervalued on a price-earnings to growth basis.
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