ADY - Rollercoaster

ADY - It isn't an MFI stock, but I have mentioned it on this blog a couple of times. It is post-worthy today as they lost about 40% of their market cap (American Dairy Falls 40% as Growth Wanes). The irony is that the stock has essentially done a round trip. It was $20 a few months ago when I mentioned they had a blow-out quarter. They shot up to $44 and now have fallen back to $20.

When I read their press release (American Dairy Provides 2Q09 and FY2009 Revenue Guidance and Business Update) here is what I think happened: One big driver of the blow-out 1st quarter was that China was in the process of changing labeling laws. That caused ADY to sell more than usual as orders were placed before the laws changed. In the 2nd quarter, the laws changed and they are having a poor quarter as all the stores had excess inventory to run-off AND ADY perhaps took too long to get the product with new lables to market. But now I think they are ready to go back to a normal run-rate.

And what is that run-rate? Well they had $56m of sales in q4, $113m in q109, they are saying $41m in q209 and they forecast $330 to $360m for all of 2009. That gives a run rate of $90m per quarter moving forward. I think if that is true, ADY represents a stellar bargain right now as people panicked without thinking in through.

The $90m run-rate would be 80% growth over 2008. At their current margins, 330m would be operating income of about $71m. That would translate into eps around $3.50 a share. I gotta think the stock price will move back towards $30 if it becomes clearer what is going on. Of course I did buy a few shares at $20 (full disclosure) today. Not as part of my MFI portfolio, but as a short-term speculative play.

I did add SGR (Shaw Group) to my mechanical portfolio. As I mentioned Saturday, I will not be adding them at this time to my RL portfolio, but will consider if price drops further.

We'll see what happens in the ADY-saga this week.