I don’t normally advocate for stocks at 52-week high prices, but Ever-Glory International Group Inc. (EVK, Financial) looks promising long term.
Ever-Glory is a Chinese retailer with more than 1,400 locations around the country and over 8,500 employees. The company earned $12 million on $423 million in sales during the last 12 months. It has a market cap just over $60 million and net current assets of $72 million including $63 million in cash.
More importantly, unlike many net current asset plays, Ever-Glory is growing.
Revenue, profit and book value are all up significantly from a decade ago. Capital spending remains well below net income, return on equity is above 13% and the company has actually expanded its gross margins as it's grown, going from 16.3% in 2008 to 32.7% in the last year.
Its main brand, LA GO GO, can be found on Amazon and Tmall, and from a value investment standpoint, while a lot of guru investors are piling into Sears Hometown and Outlets (SHOS, Financial) at essentially the same market cap, I’d rather own a company that is generating bottom-line profit.
A week ago, Ever-Glory reported solid earnings numbers with revenue of $92.79 million and earnings per share of 6 cents. The CFO, Jiansong Wang, spoke about the growth in its retail operations.
“We remodeled or relocated 40 stores during the first quarter and remain on check to relocate or remodel 200 to 300 stores in 2018," he said. "The number of new customers that come in through our retail store and same-store has constant growth and those platforms have also brought a lot of [cross] channel spending opportunities at our offline stores. We believe we will have more opportunities in the e-commerce area and we will be able to bid customers shopping behavior … which in turn will enable us to acquire new customers and retail service our existing customers.”
In China, domestic retail sales reached $5.7 billion (36.6 billion yuan) during 2017, up 10% year-over-year with north of 20% coming from online sales. This rate of growth will only continue as the Chinese economy marches toward the top spot globally. These are all good signs for Ever-Glory, even if the company doesn’t become the next great international brand.
I’ve never been to China, yet based on the numbers alone, this is another stock worth a flyer.
In the last 10 years, Ever-Glory has earned $6.58 per share in net income and has built its book value to 6.77. I still hold that at some point in the future, the Chinese yuan will trade at higher parity levels to the U.S. dollar, but even without that happening, if Ever-Glory continues to improve incrementally, the stock will follow suit.
One of the only reasons that guru investors haven’t started buying Ever-Glory is because of the company’s low trading volume. Its average daily volume is a paltry 7,500 shares. That’s because more than 10 million of its 14.8 million shares are owned by insiders. Institutional ownership is sparse, with the largest position going to the world’s largest money manager, BlackRock, with 38,891 shares. This position wouldn’t even make it to an expense report at the firm, so keep that in mind if you decide to buy.
Disclosure: I have no position in Ever-Glory or SHOS.
