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Orient Paper: Good Value Play

But wait, it gets better. The company also released its outlook saying that it expects to not only continue at these levels but "to continue strong revenue and net income growth trend for the fourth quarter 2009 and into fiscal 2010." In other words, despite the recent price spike, buying Orient Paper in the $10 range means investors will likely be paying only three to five times next year's earnings.

It gets even better. My main reason for investing in ORPN was that I see it as an uplisting play, and this is still very much in the cards. Although the company has not yet announced any uplisting, it has given all the clues. ORPN now has a majority independent board (as required by the Amex and Nasdaq), they upgraded their auditor to BDO Limited (also a sign of an uplisting) and they recently conducted a reverse split and are well above the price thresholds for both Nasdaq and Amex. The key question is valuation. The question is: With triple-digit growth in a high-margin business, what P/E will investors place on this stock once it trades on a senior exchange.

The following table is my usual back-of-the-envelope analysis on ORPN's forward P/E. Assuming a very midcase scenario of 50% growth in earnings, a stock price of $20 still leaves ORPN on a P/E of only 8.7 time. This is a stock I plan to hang onto for some time.

Orient Paper's Forward P/E
Earnings growth: 25% 50% 100%
12 month earnings: $24.0m $28.8m $38.4m
Market cap PE ratio PE ratio PE ratio
$10.00 $125.00 5.2 4.3 3.3
$15.00 $187.50 7.8 6.5 4.9
$20.00 $250.00 10.4 8.7 6.5
$25.00 $312.50 13 10.9 8.1
$30.00 $375.00 15.6 13 9.8

Another stock I follow, which reported blowout numbers, was Hong Kong Highpower Technology (HPJ - Get Report). The company reported quarterly growth in EPS of over 150% with gross margins of 25%. Gross profit was up 49% year-on-year and 70% sequentially. Chairman and CEO George Pan noted: "As we head into the fourth quarter, we believe 2009 will be a much stronger year for us in terms of profitability and overall financial performance. Our net income through the first nine months is already double of where it stood for the comparable time frame in 2008. This strong financial performance is mainly the result of the fading effects of global economic recession on Hong Kong Highpower Technology's business and better raw material cost management."

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