No. of Recommendations: 17
I know Tim has concerns about dating on receivables, but that seems to be an awful large valuation penalty. Am I missing something here?

If you believe that a stock's value to shareholders is the present value of its future free cash flows, then YONG looks like a bit of a dicey proposition at present. It has yet to generate any operating cash flow, let alone free cash flow whereas China Green, if you net out the growth capex its spent to build its new facilities, is free cash flow positive every quarter. Further, if YONG continues to divert cash into working capital, it will have to either take on debt or dilute shareholders in order to continue growing. Both of these events would deduct from the company's value to shareholders.

At present, yes, I'm hitting YONG with a very significant working capital penalty because I don't have any evidence that tells me that I shouldn't do that. They have massive receivables and finished goods inventory, which could indicate product is not moving as fast as the sales growth numbers would lead you to believe.

If you believe $35 million in receivables got collected in Q4, then the stock is very cheap today. If you believe they write off a portion of their receivables as doubtful accounts, then not so much. I'm taking a wait-and-see attitude here.

But to answer your question, the difference between CGA and YONG right now is that CGA has a track record for ably managing its working capital. YONG does not have that at present. Thus, I can value CGA with higher confidence.

Tim
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