TPS Trade Alert – June 17, 2015
Recommendation:
BUY Kingold Jewelry (NASD: KGJI) up to $1.15 per share.
Trade Rationale:
This is not your typical penny stock.
In fact, it’s a bit unusual.
This is not a stock where you’ll capture a quick overnight profit. But in the next 18-24 months, there is no reason why your investment can’t triple…. or more.
This stock gives you a rare opportunity to get ready to ride the runup of two turnarounds… a rebound in the Chinese economy and an increase in gold prices.
No, we’re not talking about a Chinese gold mining company. This is a company that manufactures and sells gold jewelry.
It’s called Kingold Jewelry Inc. (KGJI). Every week it processes more than a ton of gold.
Right now Kingold is in a holding pattern, waiting for China’s economy to get back on track.
When this will happen, and to what extent, is a huge wild card. I’ve been keeping an eye on China and two significant things are happening. Each one has a direct impact on how long it will be until this stock explodes.
One is the Chinese stock market. (Don’t worry… Kingold trades on the NASDAQ.)
Chinese stocks are trading at record highs. They could easily tumble.
If they do, Chinese consumers who would normally buy jewelry will slow down their purchases. In fact, we’re seeing this already, which is why Kingold’s stock price has been beaten down.
Another factor… if Chinese workers lose jobs because companies lay people off and the government doesn’t provide economic incentives, discretionary spending goes down. China’s growth is definitely slowing down, which you see when you look at trade data.
Leading China-watchers believe this slowdown in growth is infuriating the government, which could be on the verge of unveiling a huge new stimulus program.
But Kingold will be in good shape whether there’s a new stimulus program or not.
No matter how the big picture in China develops, Kingold gets to ride a demographic wave that keeps crashing ashore… 20 million people get married in China every year.
And that’s a lot of gold rings.
Company Profile:
Kingold Jewelry, Inc. (KGJI) is a leading Chinese designer and manufacturer of 24-karat gold jewelry. It also makes ornaments and investment-oriented products.
It retails, wholesales, and sells on sites such as Alibaba. The firm was founded in 2002 and has been a member of the Shanghai Gold Exchange since 2003.
Revenues are $1.1billion, definitely on the high side for a penny stock. But keep in mind that this stock has been beaten down by investors disenchanted with gold and shaky about China.
The stock was trading at more than $9 in late 2011.
Investment Risks:
There are three risks to keep in mind… the overall health of the Chinese economy, the price of gold, and the financial footing of the company.
Kingold’s balance sheet is a concern. Total debt is $48.79 million.
With gold prices well off their 2012 highs, and trending down, the company has been paying the price.
Kingold took a $3 million write down during the first quarter of 2015 to reflect the shrinking value of its inventory. Compared with quarterly net sales of $206 million, not a major concern, but a consideration.
And the sales trend bears watching.
Comparing Q1 of 2015 with Q1 of 2014, sales were off 32%. The company still turned in a profitable quarter despite this hit.
But quarterly revenue skids of 32% can’t go on indefinitely.
I like the way Kingold has gutted it out. Management has skin in the game. Insiders own 39% of the stock.
Gold prices edge up, even a little, and Kingold can take off.
Chinese consumers spend a little more money, and a good thing suddenly gets even better.
This is why Kingold is a rather unusual… and attractive… opportunity for serious penny stock speculators.
Key Facts:
Company: Kingold Jewelry Inc.
Ticker Symbol: KGJI
Recent Price: $1.04
Buy up to Price: $1.15
Market Cap: $63.34 million
Chart:
Category: TPS Trade Alert
