China HGS Real Estate
My last pick is more of a hunch than anything else. China HGS Real Estate (HGSH) is an investment company that has no operations itself but whose wholly owned subsidiary, Shaanxi Guangsha Investment and Development Group, operates as a commercial and residential real estate developer in Hanzhong and other Tier 3 and Tier 4 cities in China.
Since its reverse merger in August 2009, China HGS’ revenues and profits have been all over the map. Right now, it appears on an upswing with revenue of $30.4 million in the first six months of fiscal 2013, significantly higher than the $5.4 million in 2012. Same story on the bottom line, where earnings per share in the first six months were 25 cents compared to just 4 cents in the year-ago period. That’s a marked improvement from its entire 2012, which saw revenue drop by $38 million to $18.9 million while diluted earnings per share were 11 cents, 31 cents lower in the same 12-month period in 2011.
No wonder its stock is up 1,270% over the past 52 weeks through June 6. Its performance is like night and day. But what goes up, must come down. The second-best-performing Chinese stock over the past year according to Finviz is Vipshop Holdings, my second sell recommendation, which is up 401% over the last 12 months.
Few stocks can maintain this kind of pace for very long although its current business in development seems very encouraging. Nonetheless, regression to the mean could hold sway in the weeks ahead. If you were lucky enough to buy HGSH below $1 last October I’d definitely recommend cashing in your chips.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.