JQW (LSE: JQW) has had a rough 12months. The company which provides a B2Be-commerce platform focused on connecting Chinese buyers with Chinese sellers has seen its share price slump by nearly 80% since April last year to.
But while the market has turned its back on JQW, the companys business seems to have only improved.
During February, JQW released a trading update reporting that revenues for the period were ahead of market expectations. Unaudited management accounts showed revenues reaching approximately RMB 784 million(RMB stands forrenminbi, the official currency of the Peoples Republic of China) at the end of June, up 60% year-on-year.
Moreover, according to the figures supplied by the company, JQW had around RMB 425 million in cash, roughly 45m at the end of June last year.
This indicates that, at present levels, JQW is trading for less than the value of cash on its balance sheet. Furthermore, figures from City analysts suggest that the company is trading at a historicP/E of only 2.8.
These figures make JQW look to be one of the cheapest companies in London.However, while JQWs figures do seem to stack up, theres an elephant in the room
Trust issues
Certain Chinese companies have gained a reputation over the past few decades for falsifying accounts,misleading investors and poor corporategovernment controls.
And you dont have to look far to find evidence that supports this claim.
Last year, Germany-listed Chinese shoemaker Ultrasonic reported that its CEO and COOhad disappeared, taking with them all of the companys cash. A few months earlier, shares of menswear maker FujianNuoqifell by 30% for no apparent reason. It later emerged that the companys chairman had disappeared.
Another Chinese group,HydooInternational Holding, also lost its chairman and failed to find him again, whileYoubishengGreen Paper was forced into liquidation after its CEO went absent. All of these cases happened within thespace of a few months.
Theres no indication that JQW will disappoint investors in the same way. Nevertheless, based on past events, its easy to see why the market remains cautious about the companys outlook.It seems to be that JQWs valuation may be likely to remain depressed until such time as trust in Chinese corporate governance has been rebuilt.
The bottom line
All in all, JQW is growing rapidly, has a cash-rich balance sheet and is currently one of the cheapest companies trading in London. Unfortunately, JQW is being tarred with the same brush as some of its peers.
However, if JQW proves that it can be trusted, theres no reason why it cant return to 40p. As the father of value investing, Benjamin Graham, said: In the short run, the market is a voting machinebutin the long run, it is a weighing machine.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.