There wasn't much to not like about yesterday's price and volume surge in China Recycling Energy (OTC BB: CREG). It was strong. Yesterday's action not only marked the highest price in the stock's history, but it also marked the highest one day volume in the stock's history.
We've now notched a solid gain of 35% on this one since I introduced it back on October 19th at$2.40 with a $5 price target.
The news earlier this week might help explain the recent move in the stock. Another explanation isn't quite as visible, but, of course, I have it for you. Let's start with Tuesday's news concerning a $26.7 million loan to the Low Carbon Fortune-Energy Recycling No. 1 Collective Capital Trust Plan.
This is a trust that was formed to finance energy saving technology installations for Erdos Power- aCREG client. You can read the release by clicking here, but let me simplify it for you. Erdos needed financing to complete the installation of the CREG technology, which is a BOT (Build, Operate, Transfer) project for CREG. They just got over $27 million to get it done, and with no dilution toCREG shareholders. It was a loan to the trust, and the Trust is CREG's customer. Voila- a gigantic, high margin project with ten years of residual revenues- all paid for with a loan to a separate entity. Ideal. This is what is commonly referred to as "off balance sheet" financing.
Now, here's the part you haven't seen. Chicago based Garwood Securities issued a research report on the company. Director of Research Jackson Spears rates the stock a "buy"- their strongest rating, and projects$4.50 per share for the stock- 38% higher than Thursday's close.
In the report, the ERDOS project is listed as having a total value of $58.6 million when completed, and is listed as an under construction project. Erdos is listed as having 7 phases. In the report Spears states he would like to see how the company plans to "fund its capital needs in 2010 and beyond" for the individual project. It appears the market likes the answer. Spears forecastsCREG will earn $.28 in EPS in 2010. I believe that number is low- it could be more like $.40.
With the recurring revenue model I've written about in past editions, I believe the stock could command a much higher multiple, and therefore my$5 price target stands, and I might even ramp it up as they get more of these projects financed.
In the meantime, despite being somewhat proprietary, I have managed to get a PDF version of their research report, and it's available on the OTC Journal site. To simplify, you can either go to the CREGarchive section, or you could just click here
to read the report.
These ideas are really starting to work out. My #1 pick- China Education (CEU) made a new all time high this week. Tianyin Pharma (TPI) made a new all time high this week, and CREG (my #2 pick)has now followed suit. However, I would venture to say the CREG breakout yesterday was most impressive when one considers it was on huge relative volume. The stock traded both the highest share volume and dollar volume in its history.
Technically, I believe this breakout could be good for another $.30 to $.40 before the stock takes a breather. We'll have to stand by and see.
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