Is China Crescent Enterprises Worth $0.30?
China Crescent Enterprises, Inc. (CCTR) shares jumped more than 150 percent after it issued a press release indicating its belief that its share price would increase as a result of its continued expectations of increased earnings. However, is this an accurate projection or an unreasonable guess?
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China Crescent Enterprises, Inc. [[CCTR.OB]], a leader in China’s software engineering market, believes that its shares are worth in excess of $0.30 a piece, citing higher earnings going forward. Currently, the company trades at a discount to its valuation, despite its strong growth rates and management’s confidence in the company’s future prospects.
China Crescent expects to at least double its net income year-over-year in 2009, after last year’s sales resulted in over $40 million in profitable annual revenues. The company plans to discuss these expectations on a web-based conference call scheduled for Thursday, July 9, 2009. The presentation will include a preview of the anticipated second quarter’s earnings.
“Trading volume has been high relative to the Company’s issued and outstanding stock since the recapitalization completed in May,” said Philip Verges, founder and board member and managing board member of the Company’s majority shareholder. “Yesterday’s trading volume was higher than the average daily trading volume. The current share price since the recapitalization remains low compared to similar publicly traded companies.
“I remain optimistic that the price per share will increase to align with market comparables. I consider the recent price per share and trading volume volatility a transitional phase and believe the upcoming 2nd quarter report can be a milestone event leading to a price per share increase in the range of the suggested fair value target of $0.30.
“I would encourage anyone reading this press release and interested in purchasing China Crescent stock to review the Company’s recent news releases and public filings to fully understand the potential value in purchasing shares at what I consider highly discounted prices, as well as the various risks associated with investing in early stage companies quoted on an over the counter market.”
China Crescent’s balance sheet also looks very robust with a current ratio of 2.7x and cash of nearly $2.2 million or about $0.02 (based on shares outstanding). The high level of cash gives shareholders a cushion with respect to any downside, while making the company’s valuation all the cheaper when subtracted out of the current share price for calculations.
In the end, China Crescent appears to be sharply undervalued given its historical and expected future growth rates. Additionally, the cash on its balance sheet provides it with a substantial margin of safety, while adding to the discount even more when subtracted out. Prudent investors may want to take a look at this stock for their portfolio going forward.
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