China New Borun (BORN): A Chance to Participate in the Chinese Consumer Sector

By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory, 9/9/10. Sign up for free Cabot Wealth Advisory e-newsletter

There’s a fairly young Chinese company (incorporated in 2000) that’s doing quite well producing and distributing corn-based alcohol in the People’s Republic.  

The company is China New Borun (BORN), and most of its alcohol heads straight into baijiu (the name means “white liquor”) the Chinese equivalent of vodka, which is available in strengths from about 80 to 120 proof.

New Borun also gets revenue from the byproducts of the distillation process, including the grains left over and even the carbon dioxide that results.

The company’s quarterly results have been growing strongly, with four quarters of both revenues and earnings growth in excess of 100%.  The most recent quarter featured earnings growth of 153% on 156% revenue growth, with a 15.5% after-tax profit margin.

BORN came public in the U.S. in June at 7, and after dipping from 7 at IPO to 5 in July, the stock got moving in mid-July, soaring to near 10 in August.  The stock has built a short cup-with-handle base here, with its sides at 10 and its handle trading sideways for a few days.  The stock is still cheap, with a forward P/E ratio of 6.

BORN has plenty of risk factors, including its youth, its low price, its relatively low trading volume (just 352,000 share a day, on average) and its lack of support from institutional investors.  

But there’s plenty to like, as well, including a chance to participate in the Chinese consumer sector, which isn’t easy to do.

Editor’s Note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, which is ranked #1 for the last five years among financial newsletters by Hulbert. The Report is up 128% during that time (due to Paul’s expert stock picking and market timing advice), while the market is up only 1.5%! Don’t miss out on the next five years of gains—subscribe today!

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Paul GoodwinPaul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.