China Armco Metals (NYSE AMEX:CNAM)

	Recent 52-week high
	30% Earnings Per Share (EPS) growth rate
	10% revenue growth year over year
	Strong balance sheet
	15% minimum return on equity (ROE)
	8% minimum pre-tax margins
	Under 50 million shares outstanding
	High insider ownership
	Limited institutional ownership
	P/E at least 1/2 of EPS growth rate

At first glance, the GeoTeam® is not overly impressed with China Armco Metals private placement proposal announced on April 21, 2009. It appears that the deal, coupled with existing in the money warrants, could potentially increase the share count from 11.7 million to between 17.9 and 19.4 million.  The Company needs to provide more details on how it will overcome potential dilution. We would have preferred that the company maximize its share price through the execution of its current growth plan and obtain better pricing for a capital raise in the future. GeoBargain status will depend on the availability of further details. We are also unsure on where EPS for the 2010 first quarter will be. Seasonality and the volatility of its distribution are factors to consider. In the end the real story for CNAM is the growth expectation from its recycling business which should begin to play a factor soon.

This in another example of what we feel is some of the irresponsible fund raising activity taking place in the China Hybrid space and the one thing that could potentially derail P/E expansion that we began to see in this sector.  We will write more about this topic soon.

As the deal has yet to close, we would urge the company to reconsider its decision, unless it is in dire need for capital or has plans to pursue immediately accretive moves with the funds.

Disclosure: GeoTeam Long CNAM