A recent spike in the share price of China Advanced Constructn Mtrls Grp Inc (NASDAQ:CADC) left the market bewildered as to what the catalyst for such a move would be.
The company, whose shares hasn’t been moving much lately, began experiencing changes in their share price action, which we believe were driven by the rise in the traded volumes during that period.
On Thursday 16th, the traded volumes of the company skyrocketed to a near 4 million shares as compared to nil on a day prior to this.
As a result, their share price also rose to a whopping $6 and didn’t stop till they nearly hit $10 before it started falling and has been falling ever since.
This share price action can be seen below:
As a result, there has been a lot of speculation that their share price movement was purely as a result of movements in the traded volumes rather than fundamentals or catalyst-driven, a case which seems quite strong when presented at face value and one which we opted to review and critique.
Therefore, over the course of this piece, we will seek to answer the above-stated question for any reader and give a comprehensive reason behind the findings we obtain.
With that, let’s dive into the topic at hand.
An Overview of CADC
China Advanced Construction Materials Group, Inc was incorporated in the State of Delaware on February 15, 2007.
CADC, through its 100% owned subsidiaries and its variable interest entities (“VIEs”), is engaged in producing general ready-mix concrete, customized mechanical refining concrete, and other concrete-related products that are mainly sold in the People’s Republic of China (the “PRC”).
The company banks on the working relationship between the US and China to ensure that they continue to operate efficiently and that the cross-border trade between the two countries remains strong.
CADC: Our Operating Environment
The construction industry in China has been growing at an extreme rate and so has the number of companies venturing into this industry.
With total construction spending amounting to 1.78 trillion U.S. dollars, China was by far the largest construction market worldwide in 2013. Moreover, the largest company globally operating in this space, the China State Construction Engineering Corporation (CSCEC), had generated revenues of approximately 800 billion yuan in 2014.
The industry has been growing at over 9% per annum since 2009 with over 1.4 billion square meters of space constructed only in 2014. Additionally, they had over 7.5 trillion yuan invested in the sector back in 2013.
The construction sector in China is expected to receive about 25.34 trillion yuan in 2017, a record high for the sector and a major plus for companies operating within this sector.
CADC is therefore rightly positioned and poised for growth.
The company is at the optimal position to ride on the wave of growth that is currently being experienced in the country to grow itself. Moreover, with the most recent step-back taken by the US president, a lot more is expected from the relations between the two countries.
With this being said, the above gives no catalyst that would trigger such a surge in the prices of CADC.
However, we sought and found the driver.
The company’s financial performance for the most recent quarter seemed quite impeccable given their history.
During the third quarter, the company’s revenues (as compared to the same quarter last year) nearly doubled. They made over $13.7 million in 3Q2017 as compared to $7.4 million in 3Q2016. This 85% jump in revenues was symbolic of a stronger and better trading environment for CADC and one which the market could count on going forward.
Moreover, they made a gross profit this quarter of about $1.4 million as compared to the $0.9 million gross loss made over the same period last year. This is in addition to the cost reduction that occurred during the period where CADC reduced their operating expenses from $4 million to just over $1.6 million, a factor which played a major role in the reduction of their net loss this quarter to $545,590 from over $5.3 million.
As with previous periods, the company is at a positive cash flow position with their operating cash flows standing at $1.6 million which despite the reduction from $3.5 million is no mean feat for them. They also have nearly $8 million in working capital, a figure which management expects will ably sustain their operations going forward.
The above alludes to a company with well managed resources coupled with good performance. CADC, from the above, seems like an entity with significant growth potential and on the path to growth. Nothing can stop them now.
CADC has a very strong financial base, one which will support them long into the future. Given the operating environment in China as well as their current performance, the company will grow to great heights both in the near and distant future.
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Disclosure: We have no position in CADC and have not been compensated for this article.