The expansion will result in a 40% increase in capacity, primarily in the higher-margin products. The company hopes to complete it in time for the peak season in 2011. As a result, I am expecting that 2011 financial results will show very substantial growth over 2010, which itself was a record year for the company, according to already released guidance. Based on already released guidance, net income in 2010 grew by more than 50% from 2009. Based on the capacity expansion, it should grow by up to 40% in 2011. This would give SkyPeople a forward P/E of only 3 or 4.
The stock's 52-week high was $8.10, but I believe the stock could easily break through this during 2011 once full-year 2010 results are released and the capacity expansion begins to produce results.
In addition, the company is currently planning to act as a sponsor at the China investor conferences of Roth Capital and Rodman & Renshaw by providing thousands of bottles of juice for investors to drink between meetings. This struck me as a very novel way for the company to put itself on the map with investors and maximize attendance at its company presentations.
The near-term catalysts for the stock price will be the release of full-year 2010 results, which I expect to meet or beat guidance, as well as the company's sponsorship and presentations at the upcoming China conferences.
All of these catalysts will happen in March, so I expect it will not take long to see a significant jump in the share price. The first barrier I am watching for it to break is the old high of $8.10. Once it does this, I think the stock has the potential to be in the $10-12 range in 2011. This share price estimate is slightly lower than existing Wall Street estimates, which put a target price of $13 on SkyPeople. I view $13 as being slightly high based on my visit to the company and its current business prospects.
At the time of publication, Pearson was long SPU