AOB full reuters report, courtesy of fellow poster DonJean
Enjoy,
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Chinese herbs
11 Nov 2005
American Oriental Bioengineering is a Lesser Known stock developing drugs from plants.
Erik Dellith
AMERICAN ORIENTAL BIOENGINEERING INC
There are a lot of uses for soybeans. One company found in the Biotechnology & Drugs industry is looking to develop vitamins and drugs from it. This week, the Reuters Select Top Down article series looks at the Healthcare sector. We end this series with a look at American Oriental Bioengineering, Inc. (AOB). AOB caught our attention when it registered recently on the Reuters Select stock screen in the Sentiment category for Lesser Known Stocks.
Key Points
* AOB develops drugs and vitamins from plants.
* The company has been posting revenue and EPS growth rates that easily surpass the Industry averages.
* The company has superior profit margins.
* AOB's key product is designed to help treat bed wetting.
* AOB is trading at a deep discount to its peers, but it is a very volatile stock.
General Financial Condition
AOB's revenue and EPS growth rates in the trailing twelve-month (TTM) period (77.84% and 93.01%, respectively) easily outpace the Industry averages (23.73% and 40.26%).
As with the overall Industry, the company's profit margins have improved of late from their longer-term average. The company has an advantage over its brethren here. AOB's Operating Profit Margin averaged 21.99% over the last five years, but this improved to 33.87% in the TTM span. Meanwhile, the Industry norm improved from 6.97% to 19.96%. Now, consider the Net Profit Margin. In the TTM time frame, AOB's figure was 25.33%, while the Industry norm was 13.75%.
AOB's balance sheet is relatively stronger than the Industry average. The company's long-term debt to equity ratio is 0.00 against an Industry norm of 0.35; its total debt to equity ratio is 0.13 versus 0.38 averaged by its peers. Further, its interest coverage - a measure of the number of times the company's interest obligations can be met with operating income - is much higher than the Industry norm (67.12 versus 5.38).
Regarding its valuation, AOB is trading at a considerable discount to its peers. AOB's price to earnings (P/E, 18.77), P/Sales (4.79), P/Book Value (5.46), and P/Cash Flow (17.15) are all well below the Industry averages (P/E: 45.20; P/Sales: 10.35; P/BV: 6.73; P/CF: 42.00).
Nice Rally
It wasn't all that long ago that AOB was trading under $2 a share. In early summer, though, a rally erupted that has since pushed it to nearly $6. At present, AOB is trading around $5.50.
So, what's going on with this company? Well, a lot.
AOB was established in 1970, and it was listed on the OTC bulletin board. In July of this year, it received approval to be listed on the American Stock Exchange.
In a nutshell, the company operates in two areas. One is plant-based pharmaceuticals, and the other is plant-based nutraceuticals. According to the company's website, AOB operates "through its wholly owned subsidiaries of two pharmaceutical plants, two nutraceutical plant, one R&D institute, and one sales and marketing company."
More specifically, we see that the company is involved in producing and marketing two types of products. The company explains these two product lines as such: "One of these is a line of plant-based pharmaceuticals with more than 80 products featuring Shuanghuanglian Lyophilized Powder Injection and Cease Enuresis Soft Gel; and the other a line of plant based nutraceuticals with over 20 products featuring the double soybean peptide tablets."
The Cease Enuresis Soft Gel is, apparently, the only Chinese FDA-approved prescription medicine that is formulated to help alleviate bed-wetting and incontinence. Strong demand for this product has bolstered the company's top-line advances in the plant-based pharmaceutical segment.
Enuresis, or bed wetting, is not uncommon in young children, but it is problematic and embarrassing for older suffers. According to the American Academy of Pediatrics (AAP), most children do not become fully toilet trained until they are about 2 to 4 years old, and enuresis affects about 40% of 3-year olds. Also according to the AAP, most children outgrow bed wetting by the time they are in their teens. Yet, there are some adults (about 1%) who suffer from enuresis.
One should also note that AOB's plant-based pharmaceutical group revenue has also received a nice boost from its acquisition of Heilongjiang Songhuajiang Pharmaceutical Ltd. (HSPL), which has enhanced its product offerings in this area, as well as granted AOB access to new markets.
This is not to reduce the significance of the company's plant-based nutraceutical product sales. This area has also been faring well, posting double-digit advances.
Going forward, it seems like demand for the company's products should remain solid, particularly when it comes to the Cease Enuresis Soft Gel product. Another aspect to the company's growth is its desire to selectively pursue acquisitions. And we can't forget that AOB recently opened the first of its specialty retail stores. The store, "Life Peptide," opened in the Times Square section of Hong Kong. Also, since mid-October, the company's products have been available through other nutraceutical chains, including Manning China Resources and Health Plus.
So, what is the price for this growth?
Unfortunately, there aren't any analysts who provide Reuters with estimates of long-run EPS growth rates, so we can't calculate any PEG ratios. But, we can compare AOB's typical valuation metrics to those of its peers. In this regard, we see that AOB is trading at a considerable discount to its peers.
Even though AOB has a price tag that would make many hungry Value investors salivate, it is not well suited for the weak stomached. More specifically, AOB's beta is much higher than the Industry average.
Beta is a measure of a stock's sensitivity to fluctuations in the overall market, defined here as the S&P 500 Index. A reading of 1.00 means that the stock moves in lock-step with the market: the market goes up or down by 5%, so does the stock. A beta of less than one means that the stock is less responsive to moves in the overall market, and a beta of zero indicates that the stock's moves are completely unrelated to those of the market. On the other end of the spectrum, a beta of more than one means that the stock is much more volatile that the overall market. If a stock has a beta of 2.00, this means that the stock has moved effectively double the market: if the market goes up or down by, say, 5%, then the stock has gone up or down by 10%. AOB has a beta of 2.22.
Given the level of volatility inherent to this issue, AOB seems to currently be best suited for risk-tolerant investors looking for exposure to niche segments of the Healthcare sector. |
