China Armco Metals: 5 Reasons to Invest in This GeoBargain

• Price = $2.95
• Trailing GAAP EPS = $0.40
• Geo calculated Fully-Taxed Trailing non-GAAP EPS = $0.28
• Geo 2009 fully taxed EPS Estimate= $0.64 ^b
• P/E based on Fully-Taxed Trailing non-GAAP EPS = 10.54
• P/E based on Geo 2009 fully taxed EPS Estimate= 4.61

1. CNAM meets 9 out of 10 GeoBargain® Requirements
   
   

   	Requirement	Comments
   NO	Recent 52-week High (generally within 3 months)	Must Reach $7.00
   YES	30% EPS Growth Rate a	2nd Qtr. 2009 EPS increased 250% Full year 2009 Geo estimate implies an EPS growth rate of 125%
   YES	10% Revenue Growth	2nd Qtr. 2009 revenue increased 71.8%
   YES	Strong Balance Sheet	As of 2nd Qtr 2009
   yes	Positive Cash Flow	$ 17.1 Million as of 2nd Qtr. 2009
   yes	Debt to Equity Ratio less than 20%	0.0% (We still need to verify)
   no	Current Ratio is at least 2:1	1.3:1
   YES	Return on Equity is at least 15%	6 Months Trailing 18.6%
   YES	Minimum Pre-tax Operating Margins of 8%	15% as of 2nd Qtr. 2009
   YES	Preferably Under 50 Million Shares	10.1 Million shares as of 2nd Qtr. 2009
   YES	High Insider Ownership (generally greater than 15%)	>15%
   YES	Limited Institutional Ownership (generally less than 20%)	<20%
   YES	P/E Divided by Growth Rate (PEG Ratio) is Less Than 1. a	0.063

   
   

2. Recently reported a substantial increase in revenues and net income for its 2009 second quarter.

   • Revenues increased 71.8% to $22.5 million
   • GAAP EPS increased 38% to $0.33
   • Geo calculated tax-adjusted non-GAAP EPS increased 250% to $0.21
   
   
3. China Armco should directly benefit from the China stimulus plan.  On July 16, 2009 China released figures stating that GDP growth for the 2009 second quarter came in at 7.9%, easily surpassing expectations and giving some indication that the government's quick and aggressive response to the global recession is taking hold. (Source: GeoTeam report, Capitalizing on China's Stimulus Plan - Part I)
   
   
4. Favorable industry trends as discussed in the China Armco's filings:
   
   
   • Steel- We believe that domestic steel production will continue to witness significant growth as China continues to grow. The steel industry is an important basic industry of the national economy of China, and plays a vital role in the recent industrialization efforts of the country. Production volume in China has more than doubled within the past five years. China’s share of the world's steel production continued to grow in 2008 representing 38% of the world's total crude steel production.
   • Recycling- The energy saved by recycling reduces the annual energy consumption of the industry by approximately 75%, which supports the government's energy conservation goals. The PRC identified the scrap metal recycling industry as a way to minimize the use of scarce natural resources and reduce energy consumption and emissions in the steel manufacturing industry.  In China, the scrap metal recycling industry is highly fragmented with no dominant player.
   
   
5. Comments suggest that China Armco Metals can continue to show dramatic growth in coming quarters.
   
   
   • We are extremely pleased to have secured this $12 million credit facility. We see continued evidence that the Chinese economy is on the road to recovery and there has been an increasing demand for commodities coupled with a rising price environment. We believe this additional financial flexibility will enable us to opportunistically grow our distribution business and significantly improve our overall operating results.
   • Our sales efforts in the second quarter benefited from a strong rebound in several key metal markets. We believe this momentum will continue in the coming quarters and we intend to make every effort to improve our operating results further. We believe our expanded credit lines, coupled with the anticipated launch of our scrap metal recycling facility later this year places the company in the strongest financial position in its history and poised for an extended period of exceptional growth for the benefit of our shareholders.

Short-Term Potential value based on fully taxed adjusted trailing non-GAAP EPS

P/E 25 * $0.28 = $7.00
P/E 20 * $0.28 = $5.60

Short-term Potential value based on 2009 fully taxed adjusted Geo non-GAAP EPS Estimate

P/E 15 * $0.64 = $9.60

^a CNAM is not paying a full U.S. tax rate. Therefore, all EPS numbers have been adjusted by the GeoTeam to reflect a tax rate of 36%.

^b The GeoTeam is still investigating the possibly of dilution due to outstanding warrants. It initially appears that this becomes an issue if the stock reaches $5.00 per share.

These scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.

Source: GeoInvesting.com