This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Chinese Retailer Poised for Expansion

What does this mean for the stock? First of all, I'm biased. I was there from the very beginning and I am proud to say I was one of the original shareholders when it listed its stock on the Nasdaq. I own it and continue to add to my position.

My reasoning for predicting success is gut instinct, buttressed by the numbers. At 38 stores (end of 2009), it generated $250 million in sales and a gross profit of about 5% or $12.5 million. There are 35 million shares outstanding, plus 11.4 million warrants, which have an average exercise price of $3.82 (when exercised, it will bring in another $43 million in cash).

Using the fully diluted number of 46.4 million shares, QKL should earn approximately $.27 cents per share for 2009. According to a research report from Roth Capital, QKL should garner a 20 PE on forward projections. I figure based on the growth rate, it should generate over $375 million in sales in 2010 and gross profit somewhere in the neighborhood of $17.5 million or about $.38 cents a share, fully diluted.

At a 20 PE, that puts the stock in the $7.50 range. Currently it trades below $6.50, so in my opinion, there is definite value now.

I believe the real action is going to be in two to three years. At 200 stores, it should generate over $1.25 billion in sales and bring $60 to 65 million to the bottom line. While it's a given that it will probably need to raise more capital to fuel this growth, remember it should get $43 million when the warrants are exercised (they expire within the next three years.)

And they have no debt, so they could theoretically leverage up without any further dilution. Using these assumptions, it is not inconceivable that in a couple of years, QKL could command a price north of $20 a share.

My partner likes to say, "Always bet on the jockey and not the horse." If you think like that, you can only come to one conclusion. Add QKLS to your portfolio.

At the time of publication, Sumicrast owned QKL Stores.

Martin Sumichrast is co-author of multiple books on real estate and finance including "The New Complete Guide to Home Buying" and "Opportunities in Financial Careers." Internationally renowned, he was involved in the re-emergence of Eastern and Central Europe after the collapse of the Soviet Union and the Chinese expansion into the U.S. capital markets. You can learn more about Martin at SumichrastReport.com.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
QKLS $1.98 0.00%
AAPL $128.54 0.00%
FB $80.90 0.00%
GOOG $573.37 0.00%
TSLA $202.44 0.00%

Markets

DOW 18,096.90 -106.47 -0.58%
S&P 500 2,098.53 -9.25 -0.44%
NASDAQ 4,967.1410 -12.76 -0.26%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs