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Undervalued micro-cap focused on |
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solutions and equip. for China. |
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Released on Wednesday, November 30, 2011, 9:00 PM ET
Pittsburgh, PA (SpeculatingStocks) - Cogo Group, Inc. (NASDAQ:COGO) is a manufacturing company which provides customized design solutions for telecommunications and media over a wide-variety of end user products from motion sensors to GPS and tablets. Their markets are currently focused in China, a great place to be with their emerging markets and potential for a technological boom within the next few years.
Cogo used to be known as ComTech Group, Inc. and we have previously released COGO as a stock pick. Back then we estimated their stock price would go up to $17.00 per share within 2 - 4 months, and by November of that year COGO was trading above or around $17.00 per share, even continuing as high as $21.00 per share, then in 2008 the company was renamed Cogo Group, Inc. and for the past few months has left some investors utterly puzzled as the price has plummeted to a low $1.65 per share (4:00 PM EST, November 30th, 2011).
We investigated further and found a large drop in value—over 40% – in one day, August 5th, 2011. In our findings we uncovered what seems to be a bit of intense investor reaction to Q2 reports and, at the time, newly guided Q3 estimates: leading Needham & Company, an investment banking and analyst firm, to downgrade the stocks potential earnings. COGO then proceeded to predictably trend down to its now current position.
COGO’s Q3 earnings, filled with the SEC on November 4th, 2011, show a total comprehensive income attributable to Cogo of a little under $3.8 million. This works out to a quarterly earnings per share of $0.11, and is not far off from last year’s returns, and these past 2-quarters have actually proven to be more profitable combined than the previous.
At the moment, COGO has a rather low P/E of 4.06, a compounded result of its decreasing price and slightly decreasing earnings potential. But suppose we place this company around where it should be with a P/E of around 16, according to COGO’s sector of ‘technology--diversified electronics’. Even with an annual EPS of $0.40, the stock price should weigh in around $6.50 per share, suggesting that COGO’s stock value is perhaps unduly impaired.
The stock’s fast stochastic and relative strength index indicators also show the possibility that COGO is currently undersold—as dually reflected in its current price. Cogo Group is rather financially stable, with a current ratio of 2.26 and a total cash pile that reaches to about half of its total debt. In fact, Cogo holds so much cash it could dish out $2.37 per share—yet another possible indication that COGO is undervalued, as the cash per share value is above the stock’s sale price.
What do you need to keep any eye on? Well for one thing, the increasing restrictions on the Chinese, and global for that matter, credit situation: one of the proposed main reasons the company’s earnings haven’t been higher in growth. On the 10th of November, 2011, Cogo group released a statement suspending any guidance on a Q4 report, and if those values don’t come out great—or show any growth—it is possible that the per share price may drop even more.
But what is intriguing is the possibility that this stock is so cheap at the moment, and in the next few months, or perhaps a year, holding this company might prove worthwhile. It’s touch and go, but something to keep an eye on.
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