In this week’s magic formula stocks on the move Jiangbo Pharmaceuticals (JGBO) was the only stock that came into the top 30/ 50 million screen. For those individuals following the magic formula for quite some time, pharmaceuticals and biotech firms are quite the norm. Some individuals avoid them all together others like me will take a look just in case one with good prospects comes along.
Jiangbo Business Overview from Google Finance
“Jiangbo Pharmaceuticals, Inc. (Jiangbo), formerly Genesis Pharmaceuticals Enterprises, Inc., is a holding company. The Company operates, controls and owns the pharmaceutical business of Laiyang Jiangbo Pharmaceutical Co., Ltd. (Laiyang Jiangbo). Laiyang Jiangbo researches, develops, manufactures, markets and sells pharmaceutical products and health supplements in the PRC. Laiyang Jiangbo produces tablets, capsules, granules, syrup and electuary for both Western medical drugs and Chinese herbal-based medical drugs. Approximately 35% of its products are Chinese herbal-based drugs and 65% are Western medical drugs. In February 2009, the Company acquired Shandong Hongrui Pharmaceutical Factory (Shandong Hongrui).”
Jiangbo Pharmaceuticals Company Outlook
Keep in mind, that this is not a new company, it simply changed its name from Genesis Pharmaceuticals to Jiangbo Pharmaceuticals. For the most part, it deals in selling both modern drugs and traditional Chinese medicine. The simple fact that the company is in China provides the company a great opportunity for growth which is highlighted numerous times throughout their website. For example, in their Presentations page they highlight that China is the 8th largest drug market and is forecast to become the largest in the world (Chinese Journal of Pharmaceuticals 2006).
Jiangbo Pharmaceuticals Financials
To say that this company is all over the place is an understatement. In 2001, the company had revenues of 2.1 million. By 2004 it had grown revenues to 23.4 million only to post revenues of 0.2 million the following year. In the past couple of years, it has revenues between 99-117 million dollars. The same could be said for profitability and efficiency ratios which are equally all over the place.
On the other hand, Jiangbo’s balance sheet is pretty strong as it has a large amount of cash on hand (maybe too much). Jiangbo currently has 96.49 million in cash and equivalents, which equates to about $8 per share or about the same price in which its stock is trading at. This large amount of cash along with relatively no long term debt allows Jiangbo to have an Altman Z score of 4.63, which indicates the company is “safe” from bankruptcy .
Jiangbo Pharmaceuticals Valuation & Conclusion
Earnings Yield: 18.2%
ROIC: 61.2%
It’s magic formula numbers seem to be great. It’s numbers for the past two years are extraordinary high when compared to other years in the past. Thus using any type of valuation will almost indicate an undervalued stock. As such, this is another case in which we simply move on. Jiangbo is simply to unpredictable both historically and currently.
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24. June 2010 at 2:05 pm
Thank you for the analysis, but you are missing some critical information, which explains why there is such a dichotomy in the financial information reported by this company. This stock used be know as GTEC, which was a company that acquired various Chinese companies and helped them go public. Otherwise, GTEC had no income or assets. Thus, their earning were based on the companies they acquired. Approximately 2 years ago,the company was purchased Jiangbo and the symbol changed shortly after the acquisition. Jiangbo has very healthy and consistent earnings and a large cash reserve. Thus, your analysis based on prior earnings of GTEC creates a false impression that their earnings are not consistent.