Description

Bodisen Biotech (BBC) represents a rare combination of growth and value...with a likely "kicker" in the form of tremendous IBD-driven momentum buying moving into the stock.

BBC markets organic and liquid fertilizers as well as pesticides.China is the largest fertilizer market in the world, using about 35% of the world's fertilizer, or roughly double what the U.S. consumes. The total fertilizer market in China is about a $17 billion (U.S.) opportunity, and about a $1 billion (U.S.) opportunity for organic fertilizer, which is BBC's area of emphasis.

International companies are also targeting the Chinese market, but mostly with chemical fertilizers. BBC's products are scientifically proven to create between 15% to 35% higher crop yields while also improving soil conditions. Additionally, farmers who use BBC's products can sell their products as "certified organic green foods", which are typically sold at 50%-200% price premiums at the retail level.

The Chinese government has placed great emphasis on the development of its agriculture industry by providing agriculture subsidies, eliminating tax burdens and supporting the development of an open market-driven agricultural product industry. And there is a major push in China toward environmentally conscious agricultural development. The government is mandating support of "green" products because a history of intensive farming using chemical fertilizers has destroyed soil quality, depleted soil nutrients, decreased crop yields, and created large scale water pollution.

With this favorable market backdrop, channels including 150 wholesale distributors and 500 nationwide distribution centers, and strong brand recognition with local presence among loyal target customers, BBC is extremely well positioned for continued robust revenue and earnings growth.

Now let's look at BBC's numbers. The company reported a 75% increase in net income for 2005 to $8.8 million/ $.56 EPS, from $5.0 million/ $.33 EPS in 2004. Revenues surged to $31 million, up 91% versus the prior year.

This tremendous growth has been accelerating into 2006. For the Q1 (March) just released, EPS earned $.20 (excluding a $.05 non-cash one-time warrant charge) against $.05 last year, while revenues exploded 124% from $4.7 to $10.5 million. CEO Karen Wang commented: "We're very pleased with our continued momentum and growth moving into 2006. During the quarter, we continued to see strong demand for our products, even as we raised prices twice. Although historically our Q1 is the slowest quarter in a year, we achieved a robust gross margin of 40% and a net margin of exceeding 30% excluding the non-cash warrants issuance charge. Q2 is on track to achieve strong year-over-year revenue and earnings growth."

BBC management expects to "at least double" 2005 sales volume this year while targeting net margins of 30%. This translates into revenues for 2006 in the $62 million range with EPS knocking at the $1 plateau.

BBC's 2007 guidance is equally jaw dropping, as the company expects to again double sales year-over-year, while targeting roughly 30% net margins.

BBC has already announced a $45M contract for FY07, which is greater than their TTM revenues of $37M and strongly suggests that they will meet their lofty 2007 goals. If so, the company will be earning somewhere in the neighborhood of $2 EPS for 2007. How many other companies have you seen with 100% year-over-year revenue and EPS growth two years running that trade at a forward PE of 6.5?

BBC also has a stellar balance sheet with $26 million in cash and no long term debt- as a result, BBC has indicated that it will be able to carry out its 2007 expansion without diluting current shareholders.

BBC will be added to the Russell 2000 index this Friday, which should result in institutional buying from funds that track the Russell index. Additional institutional accumulation will further diminish the stock's already small float (which is in the 10.7 million share range). This could set the stage nicely for the real catalyst for BBC: inclusion in the IBD top 100 stock rankings.

IBD ranks stocks based on their EPS score and relative strength. EPS is the most important category. It is unclear how IBD weights the two measurements, but a 99 EPS score will always beat a 99 RS. BBC currently has a 99 EPS score and should maintain that score for the foreseeable future, thanks to very impressive year-over-year earnings growth.
BBC's RS score now stands at 83. BBC will need a 99 RS score to achieve the all-important IBD #1 rank. IBD also has a floor price for inclusion in IBD: $15. If/when BBC crosses $15, its RS score will likely be in the mid 90s. At that point, BBC would probably not be the #1 IBD stock. However, it would almost certainly be in the top 10 and I believe that simply reaching the top 10 will be enough to push the stock higher and therefore improve its RS score such that it will eventually achieve a 99 EPS and 99 RS score (for an example of how much momentum buying even a top 5 IBD berth can generate for low float stocks, take a look at IFO's performance while it held the #3 spot on the IBD list from May 15 through June 9 of this year). At that point, BBC would be the new IBD #1 stock.

An IBD history lesson illustrates how explosive this ranking can be. Look at past #1s such as TZOO, TASR, ERS, ESMC, LWAY, NGS, HRT, FORD, CUTR etc. Each of those stocks went parabolic when they hit IBD #1. ERS is the latest example. ERS is a simple aluminum distribution company that I recommended as a short at $44. The IBD momo crowd ran it from $15 to $60 in 6 weeks just because of its IBD #1 ranking. To put it mildly, BBC is a much faster growing company with vastly better prospects then ERS. In addition, I believe that BBC's EPS score is much more secure then ERS's, which is why it should remain the IBD #1 stock for a much longer time than ERS managed to. Think TZOO for an example of an IBD momo stock that was able to keep its 99 EPS score quarter after quarter.

Catalyst

1) Inclusion in the Russell 2000 index, along with accompanying institutional buying.

2) Increased investor awareness of this undiscovered, undervalued company.

3) Inclusion in the top 10 of the IBD 100 list, and ultimately a probable #1 IBD berth.