Investment idea: China Organic Agriculture (CNOA)

Investing is quite difficult nowadays. Where do you look at when you analyze a company you want to invest in?

The recent turmoil of China Organic Agriculture (CNOA) in all the senses has had influence on the stock price. We also were negative and sold our small position. Despite all the recent events, we see some positive signs that can create stability. The coming quarters will be important to gain investor's trust.

New management has a challenging task to get the company on the rail again. We think it is possible. If we look to the fundamentals we see some undervaluation in terms of market pricing. As contrarian value investors we are ready to take a small bet on this turnaround play.

Their free cash flow (Price to Free Cash Flow per Share TTM: 4,90) and cash position, as of March 31 2010 they had cash and cash equivalents of $25.1 million up from $18.5 million as of December 31 2009 excluding restricted cash are healthy signs which we believe are important for their changing business model. The acquisition of Changbai Eco-Beverage Co., Ltd., was already a new step in their future development direction.

The new Chairman and CEO have both experience in the corporate M&A field which can result in more acquisitions this year. We hope they will appoint a Global-100 auditor and a good IR-relations firm to gain trust in the marketplace.

The stock is still trading under Book Value of $ 0.82. The shift to becoming less dependable on trading is positive and will lead to higher and stable earnings per share the coming quarters. We really believe an EPS-figure of $ 0.22 in 2010 is possible and maybe even conservative. The stock price doesn't reflect the opportunities that lie ahead and I would consider to take a small position at prices between $ 0.50 and $ 0.55.

For more information: www.chinaorganicagriculture.com/

POSITION: NOT YET