Monday, July 13, 2009

Live by the sword, die by the sword (ADY)

AlphaNinja - At the end of the day, fundamentals matter. American Dairy (ADY) is crashing back to earth today, after being up massively year-to-date. An example of why chasing a stock simply on "technical" signals can be painful if the underlying profits don't support the valuation. The company sees revenue for this quarter of $41million, less than half the $83million the street is looking for.

American Dairy expects second quarter 2009 revenue to increase by approximately 10% year over year to approximately $41.0 million from $37.3 million, the revenue reported in the second quarter of 2008 from continuing operations. The corresponding quarterly revenue numbers from continuing operations for the third and fourth quarters of 2008 were $37.2 million and $79.6 million, respectively. More importantly, sales in the Company's core infant formula business in the second quarter of 2009 should increase by more than 100% year over year. The Company also provided guidance for full year 2009 revenues of $330-$360 million, representing an annual growth rate of approximately 80% from 2008.

Mr. Jonathan H. Chou, the Company's Chief Financial Officer comments, "Second quarter 2009 sales performance continues to be strong notwithstanding the run down in inventories in the sales channel caused by newly-mandated SFDA safety disclosures on all food packaging in China to bring them more in line with international standards. In addition, China Investment Corp. (CIC) data recently reported American Dairy's Feihe brands market share at approximately 6.4% in China's infant formula market, as of May 2009."

Stockpicker on ADY just last Thursday, pointing to a "breakout."

Looking at the chart below, you can see that American Dairy looks to be setting up to make a run at some previous resistance at $44 a share. The stock has found some solid support at $35.50 to $36 and now looks ready to test that previous resistance. If the stock can manage to break out above $44, it would mark an all-time high. This would mean that anyone who has bought the stock is positive on the name and making money. There is really no telling how much higher it could trade if shares can successfully trade through $44. Volume is also starting to pick up and easily clear the average daily volume of 181,000 shares. Watch for the selling volume to dry up and buying volume to remain strong. Keep in mind that this stock has a very low float of 8 million shares and a 5% short interest as of June.

AlphaNinja - ADY may have been showing some technical buy signals, but in the end it's the actual business performance that dictates results. Results in this case that are horrendous, sending the shares down 43% this morning:

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