Investment ideas and financial education
China Xiniya (XNY:NYSE) is a Chinese retailer that raised USD88M in its IPO back in Nov 2010. Some accounting scandals, including the famous Sino-Forest scam, are heavily depressing most Chinese stocks.
It is true these guys have not done (yet, they have recently reported some advances on this ) the manufacturing facilities and distribution center they should have built with the proceeds of its IPO, but, still, if we trust in their last quarterly report, they have a net cash position of USD180M… whilst market cap is around USD70M only! They have virtually no fixed assets (just a few warehouses and owned shops, the rest are just licensed distributors) and no debt: buying XNY shares is getting free money if you trust them.
They say they are making money, forward Price to Earnings is below 2 and… well, yes, it is clear the market believes it is a fraud. The thing has sunk from USD11 IPO levels to 1.2. In their latest conference calls to investors, they have not answered the obvious question: Why don’t you just buy back shares if you have the cash?
In any case, XNY trades BELOW the proceeds they raised at IPO! This is a clear support to those who believe they might not making any money (the stability and strength of their margins is a bit suspicious…) but unless they have spent IPO cash, it might be safe to go long here. This week I have crossed several e-mails with their CFO on the low valuation of the stock, and he referred me to the audited 20K where it is clear they are sitting on a mountain of cash, and the founder (who controls a big stake) and management have been buying stock at levels much above (USD2/Share) current price (USD1.2).
Very big volume today (5x average) and XNY going timidly up as I write… Next week (15 Aug) they will be releasing 2Q12 results, I hope they solve their trust issue so it skyrockets above USD3/share. Big funds have sold their positions, now there is only the founder (controlling stake), management and few funds (less than 6% of total). All in, XNY is a funny and nice idea to go long now. I’m holding my pos.