Sinohub (NYSE AMEX:SIHI)

On August 13, 2009 the GeoTeam® indicated that it considered placing Sinohub on the GeoSpecial or GeoBargain list. The Company reported strong 2009 second quarter financial results.

• Revenues increased 137.9% to $31.4 million.
• Earnings per share increased 333.3% to $0.13.

This marks the second quarter of superb growth in sales and comes on the heals of earnings per share increasing nearly 100% in 2008 to $0.41. Fully tax-adjusted trailing earnings per share is approximately $0.45 putting the P/E at 8.64. 

Why is the stock selling at such a low P/E with consistent EPS growth?

The GeoTeam® believes that investors may be wary due to the possibility of future dilutive events:

'We believe the SinoHub’s procurement-fulfillment and electronic component sales business can be expanded with additional funds depending, in part, on how quickly we can build out new infrastructure and hire additional staff. This is because the electronics business in China is very large relative to the size of the Company’s business. Additional working capital would enable us to purchase more electronic components from our suppliers, which should lower our costs, and thus enhance our profitability. Increased volume would also likely enable the Company to get more favorable terms from suppliers which would lower our need for additional financing from third parties. Moreover, the addition of warehouse space to support the Company’s growth will require capital investment. Accordingly, if SinoHub is unsuccessful in raising additional working capital, the Company’s growth will be adversely affected.

We intend to raise these funds through the sale of additional equity or debt, long-term debt financings, and operating cash flows.' (Source: 10Q, pg. 23)

The GeoTeam® needs to better understand this issue before making a definitive determination on how to code Sinohub.  It initially appears that raising capital will enhance the Company's profitability.  However, the earnings per share comparisons will be much tougher in the second half of the year. More details will be provided if warranted.