China XD Plastics (CXDC): Zacks Rank Buy

Zacks

China is risky right now, but China XD Plastics (NasdaqGM:CXDC - News) could be worth a look. With estimates on the rise the stock is currently a Zacks #1 Rank (Strong Buy).

Company Description

China XD Plastics makes modified plastics with automotive applications. The products are used for exterior and interior trim in more than 70 different brands that include Audi, BMW, and Toyota.

Record Revenue

On Nov 15 China XD Plastics reported $104 million in third-quarter revenue, which is a 59% increase from the same period a year ago.

Earning per share came in at $0.34, which was 3 cents higher than the Zacks Consensus Estimate. There is only one analyst contributing to the Zacks Consensus Estimate which offers some risks, but also leaves room for bigger surprises and larger upward revisions.

The CEO said this was 'another quarter of record revenue and profit growth.' Demand has been steady and the company is enjoying a fair amount of pricing power, a great combination for continued success.

Guiding Higher

China XD Plastics raised its full-year outlook when it reported the earnings surprise. So it was expected that the covering analyst would follow suit.

The full-year estimated is up 7 cents, to $1.20 on the news. Next year's forecast is up 26 cents, to $1.54. In 2010 China XD Plastics made $0.96, so the projected growth rates are at 25% and 28%, respectively.

Short Sellers in China

We have seen plenty of companies based in China fall prey to short sellers. Muddy Waters and other similar firms will build up a big short position and then release a very negative article, driving the stock lower.

Regardless of the accuracy and legality of these reports or your opinion on these types of companies, it is a significant risk when looking at Chinese companies. So, keep that in mind when looking at CXDC.

Valuations

Despite the optimism, China XD Plastics is trading with some attractive valuations. The forward P/E is in the single digits, putting the PEG at just 0.2. Shares are going for 0.7 times sales and have a book value of 1.5 times.

The Chart

Shares had some momentum heading into the earnings report, but have hit some resistance here. Given the valuations and growth prospects, there is a good chance for shares to breakout soon.

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Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service

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