Very insightful analysis! Well here's my similar...I believe this will paint $3.50 since the economy seems to be picking up from the lows of the recession back in 2008-09. So buy now at these low levels and sell once we hit around $4.
As we've seen many times over the years, AXTI's book value is not a floor for this stock. Net Working Capital Value is closer to the floor. When its earnings are anything but bad, it trades at multiples of earnings and or presumed earnings capability. So selling at $4.00 is nuts to me. If it gets to $4.00 from this level, history tells us it will either quickly move back to below BV due to false expectations, or it will trade at a multiple of its earnings capacity. Since we're down now, if it moves to $4.00, that suggests the market is switching its valuation methodology from BV to earnings capacity and $4.00 would just be a way station to higher values. The issue is whether or not an earnings uptick is eminent. If so, $4.00 is a bargain.
I know that sounds horribly optimistic, but just look at its stock price history relative to earnings..
Another factor driving the huge beta in this stock is its tremendous operating leverage. Once volumes and gallium prices pick up, AXTI's gross margins kick into gear and a huge amount of incremental sales drop to the bottom line. So it is not at all inconceivable that this stock could get to $0.15 / share quarterly earnings. (We have been at historically low gallium prices now for 6 months or so)
Also, look at Youngye as an example of what can happen to a Chinese stock. The market refused to value it properly, it traded at a 4 PE. Management made an offer, got funding and the stock is up 150% in less than a year. The same could happen here.