Nov. 12, 2009 (Chinavestor) We have just updated this article with a new chart for CAAS with explanation. See editorial at the end of the article.
One of the basic question is this: is this rally sustainable? The question is much easier to answer for Ctrip.com (NASDAQ:CTRP) then for Hong Kong HighPower Technology (AMEX:HPJ) or for Kandi Technologies (NASDAQ:KNDI). For one, Ctrip.com (NASDAQ:CTRP) has a long market history, proven track record of a relatively constant revenue and earnings growth. This is in a sharp contrast to Kandi Technologies (NASDAQ:KNDI), a stock that has been on the NASDAQ since June 2007 or Hong Kong HighPower Technology (AMEX:HPJ) since June 2008.
Ctrip.com (NASDAQ:CTRP) comes from a diffent league. As the following chart testifies, CTRP has a strong track record of revenue growth while earnings tend to fluctuate. But the overall trend is north, suggesting the company has an excellent management team that executes strategy well vs. presenting potential. On the downside, share price of Ctrip.com (NASDAQ:CTRP) has climbed back over 100% since its low in January. And while Q4 revenue guidance looks good, one has to question just how good that outlook really is. Based on the following chart most of the gains have already been incorporated into the stock price of Ctrip.com (NASDAQ:CTRP), limiting upside for the next three months.
Nevertheless Ctrip.com is a quality company versus relative new comers such as Hong Kong HighPower Technology (AMEX:HPJ) or Kandi Technologies (NASDAQ:KNDI). Another disadvantage for Hong Kong HighPower Technology (AMEX:HPJ) is its listing. Paying attention to details pays off - Hong Kong HighPower Technology (AMEX:HPJ) is an AMEX listed stock. It doesn't necessarily imply of a lower quality but listing requirement is less strict on AMEX then on the NASDAQ or the NYSE. This gives management more room to navigate within the same corporate governance framework. This is just an additional risk factor to consider.
China Automotive Systems (NASDAQ:CAAS) has been very strong and is certainly overbought right now. What makes me to think twice about this company is its erratic trading patter in the past. China Automotive Systems (NASDAQ:CAAS)has been above $15 twice in the last five years, just to see a sharp price erosion after such peaks. Without proper analysis I can't say for sure this is going to happen this time again, but if I had positions in CAAS, I'd sell it in a heartbeat right now.
Here is some more food for thought. Here is a review of CAAS revenue and earnings growth in the last seven quarters plus a reflection on the revenue guidance.
First, revenue guidance: the Company estimates a 40% increase in 2009 revenues YoY, from $163.2 million to $216.9 million. Read article here. Given that CAAS reported revenues for the first three quarters of $44.7 mil, $62.5 mil, and $64.7 mil., that leaves us with a revenue target of $45.0 million for the fourth quarter.
The other important development is that revenue and earnings growth are in line with the stock price appreciation. if that is the case, don't expect much upside for CAAS for now. If our revenue estimates are correct, China Automotive Systems (NASDAQ:CAAS) is in trouble. Remember, we use information from sources that we think are reliable, but we can't guarantee its accuracy.
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