ATML Earnings Action

Enthusiasm has waned for anything China related, but American Oriental Bioengineering Inc. (AOB) should have gotten more of a pop on yesterday’s news that Roth Capital initiated coverage of the company with a “buy” rating and a $10 price target, highlighting its "cash-rich" nature. That stood out right away because a look at the financial statements shows that at the end of last quarter, the biopharma company had $220 million cash. The strong balance sheet, even with having $115 million in notes used to finance recent acquisitions, is worth noting in a time of tight credit and especially because this small cap has a market cap of under half a billion, just a bit above enterprise value. Earnings results have also been quite strong too with net income for the third quarter increasing by 38% to $16.5 million or $0.21 per diluted share, compared to $11.9 million or $0.16 a share in the prior year period. At the same time those results were reported in November, management raised its 2008 revenue outlook to $250 million while reiterating full year net income of $62 million – implying that the stock trades at a single digit multiple, a pretty low valuation. On the call, management noted some other positive tidbits - their recent acquisitions of Nuo Hua and GHK should soon begin to have a positive impact on earnings, the stock buyback plan still has in excess of $45 million just waiting to be used, and hinted at the benefits of upcoming Chinese healthcare reform. With 7.57 million shares short, or about 12.3% of the publicly traded float of 61.38 million, American Oriental is a short squeeze is just waiting to happen.