|Market Growth LT||A+|
|Market Growth ST||F|
Mixed Growth Record Based on Company's Recent Reports Suggest Investors Use Caution in Buying the Stock
Yongye International,'s recently reported $45.27 million in revenue booked during the last quarter marks a sharp reversal from an excellent long term growth trend. This latest report represents a 29.67% decline from the $64.37 million in revenue reported by the company during the same quarter a year ago. By comparison, it booked $423.89 million in revenue in the 12 months ended also last quarter, 283.29% higher than what it did in total sales during the equivalent period three years earlier, or $110.59 million. Such a drastic reversal belies a severe downturn in the company's business likely to have a significant impact on profitability as well. It also reported a yearly drop in profit during the last quarter from the year earlier period, a sudden reversal from the strong profit growth the company has been posting on a long term basis. MarketGrader measures long term profit growth by comparing the latest full year profit (12-month trailing) to the equivalent period's results three years earlier. Even though Yongye International, recently swung to a First quarter loss of $1.46 million from a year earlier profit of $13.62 million (excluding extraordinary items) , its 12-month trailing profit for the period ended March 31, 2013, which included this latest quarter, improved to $65.59 million from $3.26 million earned in the 12 months ended three years before, a 1911.74% increase. The company's margins contracted during the latest quarter with an average 11.43% decline in EBITDA, operating and net margins from a year earlier, reversing the preceding quarter's margin expansion.
The company exceeded analyst estimates by an impressive 3100.00% with its April 01, 2013 report; however, investor reaction was relatively mild as the stock rose only 2.12% after the announcement, indicating the surprise was already factored into the stock price or the gains came from one-time items. This report continues a remarkable trend of beating analysts' estimates consistently, having exceeded them by an average of 610.24% in the last six reports.
|Price/Cash Flow Ratio||A|
The Stock's Valuation is Attractive Based on the Company's Overall Financial Strength
Yongye International,'s stock is trading presently at 3.86 times trailing 12-month earnings per share, which represents a 85.00% discount to the company's "optimum" P/E ratio of 25.70; this ratio is calculated by MarketGrader based on the company's two-year EPS growth rate, which in turn is computed by looking at the rolling 12-month periods ended in each quarter within the two years and measuring their growth. By this measure, Yongye International,'s earnings per share have grown at an annualized rate of 8.15% in the last two years. This rate of growth could decelerate soon given the company's recent margin contraction, despite such good Profitability grades. This could in turn put pressure on the stock price. The stock also trades at 0.00 times forward earnings estimates for the next four quarters, lower than its trailing P/E and the S&P 500 index's forward P/E of 15.20. By placing a lower multiple on the company's future earnings than it does on the market as a whole, investors may see the company as financially strong but with relatively poor growth prospects. This may offer a valuable opportunity for patient investors willing to wait for future earnings reports.
Investors are currently valuing Yongye International, at 0.82 times its tangible book value per share, which either undervalues the company significantly or anticipates a sizable asset write-down. Tangible book value excludes intangible assets such as goodwill in an attempt to arrive at a conservative estimate of the company's liquidation value; this is sometimes helpful to understand what kind of premium investors are willing to pay for its ongoing business and future earnings. YONG's intangible assets account for 24.25% of its total reported stockholders' equity. Based on the $0.55 in cash flow per share generated by the company in the last twelve months, at the current price of $5.11 the stock trades at 9.24 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its shares also trade at 0.61 times its trailing 12-month sales, a small 85.10% discount to the Chemicals: Agricultural industry average price to sales ratio of 4.10. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. By this measure Yongye International, is priced very attractively with a total value of $259.00 million , only 0.00 times higher than its latest quarterly net income plus depreciation.
|Return on Equity||C|
|Quality of Revenues||A+|
Profitability Grades Are Solid, Indicating the Company's Business Is Strong and Healthy
While most of Yongye International,'s profitability indicators are positive, the company's return on shareholder equity, based on 12-month trailing results--an important MarketGrader indicator--is pretty weak and should be watched closely after next quarter's report. This is despite operating margins that exceed its industry average and a net profit of $65.59 million earned by the company during the same period, equivalent to 15.47% of total revenue, a solid net profit margin. The Chemicals: Agricultural industry had an average operating margin of 18.73% in the period. The company's operating margin of 25.21% exceeded that average by 15.88%. Yongye International,'s return on equity deteriorated significantly during the last twelve months to 15.70% from the year earlier period's 24.32%. Although the most recent value is still acceptable, it underscores a worrisome trend in an indicator MarketGrader considers very important in measuring the company's management's efficiency.
In light of such a large decline it's encouraging to see that the company is managing its capital structure very conservatively, which gives it plenty of room to raise capital if conditions deteriorate any further or to help jump start its growth. Its total debt is equivalent to less than one third of its total equity, with long term debt accounting for only 2.53% of total capital. Yongye International,'s core earnings in the last twelve months grew moderately from the twelve months ended a year earlier. The company's EBITDA for the most recent period was $133.01 million, or 6.30% above the $125.14 million earned from its core operations in the prior period. EBITDA is used by MarketGrader to measure the company's true earnings power since it includes interest expenses, income taxes, depreciation and amortization, all non-operating expenses, which are nevertheless accounted for in other parts of our analysis that look at EPS gains and net income.
|Cash Flow Growth||A+|
|Debt/Cash Flow Ratio||A|
|Interest Cov. Capacity||F|
Company's Cash Flow Indicators Are Solid Across the Board but Offer Some Room for Improvement
Yongye International,'s cash flow grew considerably in its latest quarter to $141.15 million, a 128.64% increase from $61.73 million reported in the year earlier period. This growth seems to be accelerating considering that in the last twelve months the company's cash flow was 17.17% higher than the twelve months ended a year ago, a nice increase but quite lower than the current pace. This upward trend should boost its margins and overall profitability in the next few quarters. Even though the company has $73.40 million in total debt, its net debt is virtually zero since it has $184.44 million in cash on hand; and since it generated $5.58 million in earnings before interest, taxes, depreciation and amortization last quarter, it's safe to say its liquidity is remarkable. Therefore the company's debt is not only very manageable with its own cash flow but could be increased if it wanted to pursue strategic growth opportunities. The company also has the ability to enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future value of its earnings. The current amount of cash and equivalents it has on hand is 29.95% higher than a year ago when it had $141.93 million; while in this same period its leverage also increased, with total debt as a percentage of total capital climbing from 10.18% to 13.53% today, the company's cash on hand is still larger than its debt.
An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA, which measures each company's true return to shareholders after accounting not only for the cost of running the business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both equity and debt, EVA measures the creation of true economic profit. In this case Yongye International, had $481.27 million in invested capital in its most recent quarter, a combination of both equity and long term debt. However, the company's weighted cost of equity of 3.09% is much larger than the weighted cost of debt, which is 0.14%. When combined, the two result in a total cost of capital of 3.23%, quite low compared to the company's total return on invested capital of 22.20% based on 12-month trailing operating income. The result is an excellent economic value added of 18.97%, a very high return to investors after all capital costs are covered. Yongye International, does not pay a dividend and hasn't done so within at least the last five years.