The mispricement of E-future is a little more complicated and subtle when compared to companies that are potentially fraudulent, yet have market caps that are just absurdly low when compared to stated book values. If those companies are anything but a scam, the prices are absurdly low. Not currently traveling within China, I don't really have the means to investigate them properly - so I'd have to rely on secondary reports - of which there are few to none.
E-Future on the other hand is clearly not a scam and has easily veriable business operations. The operations are real. The business is real. The financial statements are accurate and reliable. They have spent many years developing internal financial controls that are just as good, if not better, than any of the other Chinese small caps trading on American exchanges.
And although growing steadily and believably at the pace of general Chinese Retail growth, the company has been steadily trending downwards and is now trading at 0.6x Annual Sales.
So although E-Future doesn't have the eye-popping statistics that just seem too good to be true - and maybe are? - it's still a very undervalued company that can boast of having much better control over financial reporting than many of this week's Chinese high-flyers.
My greatest concern is a bunch of newbie investors piling into this stock only to make it unnaturally volatile over the mid-term and further tarnish the image of those few upstanding Chinese Companies playing by the rules and growing the long, slow, sustainable way.
The takeaway for long-term board participants here is that the next two days to end the week have the potential for massive and immediate price appreciation due to newly aggressive stock-hunters trying to find value in down-trodden Chinese stocks and then followed by momo speculators/short coverers.
E-Future made the Leaders Board today with it's 8.5% rise in a down market. Follow the trend...
CLNT, HEAT, SMRT, THTI, RCON - if these are anything but totally fraudulent companies employing deceptive accountants and paying criminally-complicit auditors, these runs have legs - with the possible exception of RCON. On the other hand, E-Future does not have that same shadow of corruption - as if you follow the company long enough - it becomes patently clear. Whether or not E-Future catches wings this week is unclear, but certainly the probability for a major breakout today or tomorrow has just increased expotentially. Risk/Reward in the short-term is now HEAVILY weighted in favor of Golden Tickets.
If we saw something crazy like 400% gain - which is highly unlikely, but remotely possible, I'd probably sell at that 2.5x revenue level. It would be hard to not take that and let someone else take the risk at what seems to be a fairer price.