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Jiangbo Pharmaceuticals (Nasdaq: JGBO)
Jiangbo Pharmaceuticals engages in the research, development, production, marketing and sale of pharmaceutical products in China.
I know what you're thinking....another Chinese company. Just breathe..... breathe....breathe. Ok let's look at what facts we do have.
Jiangbo reported results on Wednesday which continue to alleviate fears that it's a reverse merger fraud like Rino International. Jiangbo reported a double-digit jump in revenues and another marked jump in cash as its primary products, Clarithromycin sustained-release tablets and Itopride hydrochloride granules accounted for two-thirds of its revenue. What's important to note is its cash flow remains strong and it has resolved a long-standing debt issue with its lenders which had haunted the company for years.
On a trailing basis, the company has produced $1.74 in EPS in just the past six months. Although Jiangbo stated that the majority of its products have hit their maturity level and may not grow much beyond their current levels, you have to consider the amount of cash flow these high margin products will continue to bring in. In addition, Jiangbo thought it best to remove its prior EPS guidance because of potentially rising material costs. Even if costs clamp down on the company, I'd have to assume that even during its weaker months, it'll wind up with a full-year figure around $2.75 in EPS. Pretty much we're looking at a P/E of about 2.4 based on those figures.
The best part is I haven't even mentioned the ridiculous amount of cash that Jiangbo has on its books thanks in large part to those high gross margins. Jiangbo ended the quarter with $135.9 million in cash equivalents which is a $27 million jump from this period last year. In short order, once you remove their existing debt balance, Jiangbo has nearly $9 in net cash. Forgetting their profitability and the $1.74 it's earned in the past six months, the company has $9 in cash that you can buy for $6.30 a share right now. Pretty much, that's a 30% discount to putting your money under the mattress.
Jiangbo insiders have never sold any shares of the company, another sign that investors should think twice before assuming this company is a fraud. Three of the five company officers have served with the company practically since its inception which is promising but we still need to remember this is a young and potentially inexperienced management team.
In the end this is a cash story. We have to determine whether it is worth the risk to buy into a company trading that much below cash value given the rash of Chinese frauds we've witnessed over the last year. In my opinion, we've seen Jiangbo reporting its earnings results in a timely manner, it's resolved its debt repayment issues, and it hasn't diluted shareholders into oblivion. It continues to reign in cash flow and insiders have been unwilling to sell any of their 48% stake in the company. Everything here, to me, points to an extremely undervalued company that has been marred by fraud allegations in China Media Express, China Sky Medical, Rino International, Duoyuan Printing and a few others I'm sure I'm forgetting.
Based on Jiangbo's nearly $9 in cash and consistent history of producing $2 or more in yearly EPS, I think a more than fair value lowball estimate would be $13.00 a share. Eventually investors are going to wake up and smell the profit behind these herbal medicines.
Those numbers don't lie, and that ain't no bull!
TMFUltraLong