China Growth Stocks

[ratobranco]

CCME - the earnouts help make the deal more attractive, of course. But the 3.00 2011 EPS includes earnouts. So they sold shares for 4.27/3.00 = 1.42 2011 P/E, and this happened in 2009.

It would be one thing if the incoming cash were necessary for them to produce that 3.00 EPS. Then they could say, "true, we sold shares at a bad 2011 P/E, but the strong 2011 EPS that we've achieved would not have been possible without the financing that we received to build our factory, or buy our coal mine, or whatever. So it was worth it. It was accretive, even though unfair to us."

They can't say that. They've grown this company from $29MM ttm net income as of June 30, 2009 to over $120MM net income in 2011 essentially without any capex at all. That's pretty extreme, and the fact that they took in all this money that they didn't need at such a terrible valuation, despite having all that growth already fully in the cards, with no need for additional investment to make the growth come to fruition, is pretty weird.

Think about this. They could have owned the entire CCME company. People here say its fair value is $40 per share, $2 billion? That means they could have been the sole owners of a $2 billion dollar company if they had never done this. Instead, we got around a 25% stake, which means they gave us $500MM for essentially no consideration at all. Free money. Here you go Americans. Let us go public with your SPAC and we'll give you $500MM lol.

Of course, you can say, "but they didn't know the business would blow up like that. They didn't know that they would quadruple their earnings by 2011." Really? Their earnouts clearly indicate that they anticipated such growth. Judging from where they set their earnout targets, they seem to have known how profitable this enterprise was going to become.

With that said, cash fraud against Deloitte when you have big name investors like Starr funding audits and so forth, is even more weird than the crazy story that I just told you, so don't interpret my comments as necessarily saying anything controversial here. It's just a very puzzling story through and through, with the bias IMO favoring legitimacy simply because the alternative--that blatant cash fraud against a top 4 auditor occurred despite having big whigs involved--is far and away the most puzzling story of all.