NEW YORK (TheStreet) -- China agriculture stocks, AgFeed Industries( FEED), Origin Agritech (SEED) - Get Report, American Dairy( ADY) and China Green Agriculture (CGA) - Get Report have all witnessed a significant build up in short interest and a sharp correction in stock prices since April.
AgFeed Industries is trading at 52-week lows of $3.30, while Origin Agritech has lost 22% in the last one month. American Dairy has lost 15% and China Green Agriculture has declined 21% in the last one month.
In comparison, both Shanghai composite index and
index have lost 14% and 8%, respectively during the same
The recent quarterly results were not particularly strong, falling short of lofty analyst expectations. Nevertheless, we reckon these stocks have been oversold leading to an
An attractive price-to-earnings ratio, possible short covering once these stocks start recovering on inexpensive valuations coupled with a continued bullish sentiment among analysts could lead to an upsurge in prices.
The short interest build up on these stocks recently is rather amazing and is one of the highest across all U.S. listed China stocks. As a percentage of float, short interest for AgFeed Industries, Origin Agritech, American Dairy and China Green Agriculture is 23.57%, 26.94%, 22.86% and 21.20%, respectively.
AgFeed, American Dairy and China Green Agriculture are trading at attractive forward PEs of 13.3, 16.3 and 12.1, respectively.
Recent Quarterly Performance
AgFeed Industries, a U.S. based food processing company with operations in China, reported a revenue growth of 58.1% to $52.9 million during the first quarter of 2010 driven by an expanding market share in its feed business and the production of its hog farm.
However, the company's earnings came in below analyst estimates. The company reported earnings of 2 cents per share compared to consensus estimate of 11 cents per share. This is attributed to the fact that cost of goods sold increased 68.5% to $46.5 million, thereby contracting gross margin by 541 basis points to 11.95%.
Furthermore, operating margin fell 645 basis points to 3.07% as total operating expenses soared 79.0% to $4.7 million.
Recently, Rodman & Renshaw rated the stock a market outperformer with a target price of $7, representing an upside of over 100% from current levels.
Origin Agritech, a technology-focused supplier of crop seeds in China, reported a narrowed net loss during the second quarter of 2010 to 18 cents per share from a loss of 52 cents per share a year ago.
Moreover, the company reaffirmed its revenue guidance for 2010 in the range of RMB 630 million to RMB 660 million, representing a year-on-year increase of 10-15%. American Dairy, one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, missed consensus estimates by 4 cents per share during the quarter ended March 2010 as revenue declined 28.5% to $81.4 million.
For the second quarter of 2010, American Dairy expects total revenue to exceed $60 million, while analysts estimate revenue of $59.84 million.
Recently, Rodman & Renshaw, and Oppenheimer & Co rated the stock an outperformer with a target price of $21 and $25, representing an upside of approximately 25-50%, respectively.
China Green Agriculture, a leading producer and distributor of humic acid based compound fertilizer, surpassed analyst estimates of 21 cents per share, by reporting earnings of 22 cents per share during the third quarter of 2010. The company also registered a revenue growth of 52.0% year over year.
For the full year ending June 2010, the company increased its earnings guidance to 90 cents to 91 cents per share, representing a year over year increase of approximately 15%.
Recently, Roth Capital Partners and Chardan Capital rated the stock a buy with a target price of $15.50 and $18, representing an upside of 50-80%, respectively.
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