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Value Investing Stocks (Archived)

BSPM - Biostar Pharmaceuticals, Inc.

Value investing is another popular investing strategy which is suited to patient investors with a long-term view. There are two main value investing strategies used by investors.

  1. The modern approach - buy stocks that are trading below their forward PEG.
  2. The classic approach - buy stocks that are trading below their book value.

The classic approach is the traditional value investing style made famous by Benjamin Graham but finding good value investing stocks is far more difficult with this approach during bull markets.

In the July 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Biostar Pharmaceuticals, Inc.

Biostar Pharmaceuticals, Inc. NASDAQ:BSPM is a micro-cap company in the pharmaceuticals industry and its stock trades around $0.2 million per day. BSPM is a stock that has fundamentally problems with its earnings but it's a company with very low levels of debt. BSPM is a very high risk stock that could potentially make a fortune should the company get its earnings back on track. BSPM is trading below its book value and this makes it a classic value stock.

The key fundamentals for BSPM are shown below.

Growth fundamentals for BSPM

YearRevenueEPS ROEBook ValueEmployees
2009530.98 26%3.80530
2010801.91 29%6.70500
2011921.30 16%8.10500
201249-2.00 -35%5.80430
2013530.05 1%3.10430

The fundamental data above shows that BSPM is a stock that has problems with its earnings which report a big loss in 2012 and a poor result in 2013. This is reflected in its revenue which dropped in 2012 and a slight recovery in 2013. Also the book value has shown a decline over the last two years and their have been staff reductions.

Fundamental Analysis for BSPM:

When BSPMs made a profit the return on equity was quite strong at around 20%. Also prior to 2012 the profit margin (profit to revenue ratio) was strong at around 20%.

The current ratio (current assets to current liabilities) is strong at around 6.0 which indicates that BSPM has ample working capital.

The debt ratio (long-term debt to tangible assets) averages around 0.1 which means that BSPM carries a significant amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) averages around 10% which means that BSPMs total debt is 10% of its total assets.

All up while BSPM has taken a big hit with its revenue and earnings (probably due to competition or a failed new product) BSPMs strong working capital and high net assets can allow it to weather the short financial woes. This is a high risk stock with potentially very high returns.

BSPMs book value is around $3 and its stock price is around $1.50 which makes BSPM a classic value stock as its stock price is below its book value.

The bankruptcy risk can be calculated using the Z-score. BSPMs Z-score is a whopping 18.2 which means BSPM is an extremely low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 19-Jun-2014 and this allows the reader to see how the stock performed over the next year.

BSPM had its 2014/03 quarterly results released prior to 19-Jun-2014 and this information is available for the analysis. The 2014 Q1 earnings showed a profit of $0.02 per share.

Overall BSPM is a stock with recent revenue and earnings problems but it is in a good position financially to weather the adverse conditions. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in BSPM on the 19-Jun-2014 would give a purchase price of around $1.50.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth.

Chart 2. Stock chart with earnings for BSPM

weekly Chart BSPM

As shown in Chart 2. above, BSPMs stock price declined by 17% to around $1.25 over the next year. BSPMs 2014 annual earnings reported a profit of $0.31 per share.

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