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Jonathan Poland
Jonathan Poland
Articles (225)  | Author's Website |

Risk & Reward with Xinjuan Real Estate (XIN)

April 12, 2015 | About:

Here's a stock that has been on a roller coaster in the last 4 years, but one that could become a rocket any time now. As far as being a Ben Graham net current asset trade, it's margin of safety is extremely high.

As of the latest quarterly statement, Xinyuan’s balance sheet shows a net current asset value of $782 million. Compared to the market capitalization of $242 million, that presents explosive upside potential. Especially, given that they are one of the few companies that are net current asset positive and are also profitable.

This is not a company that many look at from a growth perspective, because despite the fact that revenue and income both more than double from 5 years ago, the stock is trading at about the same (or even lower) price, and shareholders now receive an annual dividend payment of 6.23%.

Balance Sheet

Price Chart

Of course, the biggest factor for many of these Chinese companies has been fraud. Yet, with Xinyuan, I think it’s fair to say that the company is real and the books are correct. I was recently in New York and it reminded me of the Williamsburg project the company has in Brooklyn, which has been selling condos for around $1,100 a square foot.

The project (Oosten) has a total of 400,000 square feet, which means total sales from the project are likely to exceed $400 million. The cost is to be less than $250 million, so when expenses and interest are taken out, XIN could add more than $100 million to its cash position. That alone is worth close to one half (½) of the current market capitalization.

Do they have inventory piling up? Yes, over 2,000 active projects are still unsold. But so what? It’s not like a used car that’s depreciating as it sits on the lot and gets older. If anything, the value of the company’s holdings will be getting more valuable.

Fourth quarter revenues of $362 million, a 121% increase from third quarter of 2014; contract sales of $402 million, which is a 140% increase from the third quarter of 2014. The annual comparisons show the company surviving the downturn in Chinese market with revenues up 2.5% to $920 million in 2014; floor area sales down 5.5% to 629,000 square meters; and net income down 61% from $126 million in 2013 to $48 million in 2014. For me this is not a big deal as long as they are adding to Book Value, which XIN seems to be doing very well.

In fact, the book value is close to $13 per share. With the Brooklyn project coming to an end and sold by next year, XIN could tack on another $1 on it’s book value.

The stock sits at $3.20. At this price, it's a bargain.

The risk would be if the company is truly a fraud; I don’t believe that’s the case.

The reward is for a patient investor to see 100% gains in the next few years, or sooner.

About the author:

Jonathan Poland
Thanks for reading! I'm a former money manager and financial publisher that has helped investors produce market beating results since 2001. Today, I turn 40,000 hours of work analyzing and forecasting the world's leading investments into models for better business development.

Visit Jonathan Poland's Website


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