Cleantech Solutions International Inc (NASDAQ: CLNT) Is An Undervalued Situation

The manufacturing company, Cleantech Solutions International, Inc. (NASDAQ: CLNT), is our new profile. On April 7, 2017, the company received a letter from the Nasdaq informing CLNT that it regained compliance with Nasdaq listing requitement. The market liked the news and the share price rose more than 100% from the day of the announcement. Due to the price spike, we're taking a closer look at CLNT. First, take a look at the chart and the recent move:SourceThe companyCleantech, headquartered in Wuxi City, Jiangsu Province in China, manufactures high precision metal components and assemblies. Many of the customers of the company provide clean technology equipment, such as wind turbines or other technologies that require energy efficient equipment.The company is divided into three divisions:

• The dyeing and finishing equipment segment: it has the capacity to manufacture and assemble approximately 600 textile-dyeing machines annually, and in 1999, it received the “Advanced Enterprise for Progress in Science and Technology Award” and the “Star of Brilliance Medal” from the Wuxi City Bureau of Industrial and Commercial Administration. In addition, in the last annual report, the company communicated that it holds 33 Chinese patents.
• The forged rolled rings and related components segment: it has an annual capacity of 50,000 tons and it is a ISO9001:2000 certified supplier.
• The petroleum and chemical component segment: it produces and sells coal chemical equipment, downstream products and other products for the chemical industries.

The last sales’ breakdown that we could see in a company presentation shows that the company obtains most of its sales from the dyeing and finished equipment, which accounts for 56% of the total sales. Additionally, 19% of the sales come from the wind power sector, whereas the rest comes from other industries. But, what is the main goal of the company? Why is the company targeting this sector?Cleantech is trying to profit from the China National Environmental Protection Plan that focuses on textiles and dyeing, chemicals and oil & gas industries. According to this plan, many industries, wherein Cleantech is involved, will need to adapt to new regulations and reforms. For example, the total government investment in the wind power sector is projected to be $200 billion in 2020, and the textile industry is forecasted to grow at 8% CAGR. From this presentation, you can obtain more information about these ambitious plans and how the company will profit from them.Balance sheet and per share numbersThe last financial figures that the company reported as of September 30, 2016 show that the company has a solid balance sheet. The most important assets include cash, almost $12 million, accounts receivables, which is $15 million and equipment, and net of amortization, $37 million. The total amount of assets is $84 million. On the side of liabilities, the company reports almost $3 million in short-term loans and $3 million in account payable. In total, the amount of liabilities is $7 million. It is very relevant that readers understand that the amount of long term debt is zero, which means that the company does not have financial risk.If we take a look at the per share values of the assets, we get a great surprise. The total amount of shares outstanding is 1.3 million. So, take a look:

• The total cash per share of the company is $9 per share
• The accounts receivables is about $11 per share
• The book value per share is $59 per share

On April 12, 2017, the share price was $5.41 per share, which is 60% the amount of cash. This way of valuing the company is called liquidation method. It means that you could buy the company for 60% of the total amount of cash holding in the balance sheet and obtain the cash. If you believe that the rest of the assets in the balance sheet are worthless, then you would obtain 40% return by acquiring the company.Why is this happening and what can happen next?In the United States, there is a large amount of investors, who do not trust the way that Chinese companies do their accounting. That is the reason that the share price of this company is trading at these levels. In this kind of situation, we have in the past seen Board of Directors decide on a buyout and go private. While a go-private transaction is not a sure thing with CLNT, it is likely if shares remain depressed.NasdaqIn a very recent SEC filing, the company communicated the following:

"Wuxi, Jiangsu Province, China – April 7, 2017 – Cleantech Solutions International, Inc. (“Cleantech Solutions” or “the Company”) (NASDAQ: CLNT) today announced that it received a letter from The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that it has regained compliance with the Nasdaq Capital Market's minimum bid price continued listing requirement. The letter noted that, as of April 5, 2017, the Company evidenced a closing bid price of its common stock in excess of the $1.00 minimum requirement for the last 10 consecutive trading days. Accordingly, Nasdaq advised the Company that the Company has regained compliance with Nasdaq Marketplace Rule 5550(a)(2)." Source

The company regained compliance with the Nasdaq's minimum bid price continued listing requirement. This is very relevant information, since institutional investors will now be able to buy shares. Many funds cannot buy companies whose share price is blow $5 or $1. Thus, we expect that the shares will obtain from now on an adequate level of liquidity and we believe that this could cause an increase in the share price.ConclusionThe shares of the company are trading at absurd levels. We believe that the market will start to realize that the valuation is not correct. We believe that in the following months, the stock will rise and the share price should go back to at least the cash per share standing in the balance sheet. But, if this does not happen, the Board of Directors may decide to buy all the shares outstanding and take the company private. Either way, it's a win-win situation. The bottom line is that CLNT looks to be a hidden gem that should be on investors' radar.We will be updating our subscribers as soon as we know more. For the latest updates on CLNT, sign up below!Disclosure: We have no position in CLNT and have not been compensated for this article.