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China Stocks: Price vs. Fundamentals

Stocks in this article: CWS BSPM DYP

The company received notification that they were in conflict with China SFDA advertising rules and the stock took a hit. Despite fully resolving the issue and quickly communicating the resolution to the market, the stock took a quick hit. Then the news of the SEC investigation of Goldman Sachs (GS) hit the market and BSPM took another hit, then there was Greece and the Euro then there was the 1,000 point drop in the Dow. And so on.

BSPM now trades right around $4 again, despite giving full year guidance of $18-20 million in net income. This is a stock that has already uplisted to the Nasdaq and yet still trades at five times guided earnings due to an overall negative market. Without a big upward push in the market, the catalyst needed to make this stock move may well just be next quarter's earnings which should prove the company is on track to meeting full year guidance. So it may take some time. I also think that since BSPM is now Nasdaq traded it will be easier to attract institutional research coverage. However when or if that happens is not predictable, so I am not looking for any immediate gratification on BSPM but rather think it is has strong potential over the coming months.

With both NEWN and DYP, a key contributor to their recent low prices has been the fact that both trade with unusually wide bid ask spreads. This means that when just a few investors panic and decide to sell out in a tough market the bid price drops quickly. As a result the selling investors panic even more and drop the share price further. In general I try to avoid putting myself in that situation. I only own stocks that I like based on fundamentals. When it comes time to sell I try to do so when the market is having a strong day rather than selling into a weak market and pushing the bid price down.

When the stock is down, I don't worry about my portfolio's value for the day because I am fully comfortable with the longer term prospects.

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