A Small-Cap China Stock Declining More Than 50%

I ran into a small-cap China stock over the weekend that I thought was somewhat interesting.  Did you know that VisionChina Media (VISN) closed down more than 50% recently?  In January,
VISN was trading at near $12 per share but today, it is only trading below $5 per share.  So, should investors be buying VISN now?  What is the outlook for VISN?

VISN distributes television content and advertising to buses and subways in China.  Many investors were interested in VISN for many reasons, which caused this stock to near $25 per share in 2008:

  • VISN was a fast-growing company where sales were up more than 250% in 2008 and continued into 2009
  • VISN’s operating cost has been low near 20% of sales
  • VISN had a strong balance sheet with more than $100 million in cash 
  • VISN was profitable with 60% gross margins

Why is VISN declining?  The problem started when the advertising started dropping in China but the problem became worse when they bought DMG Media for $160 million in cash and stock, which turned VISN into not so fast growing company.

In looking at 1 year chart, there is a big gap down between $6 - $7.  VISN has been continued to trade lower since then.  There is also a major resistance level at $5 going back more than one year.  I would hold off buying VISN until it trades above $5.  Until then, it could continue to trade lower into low $4.  However, I do feel that VISN will eventually cover the gap in $6 - $7 range sometime this year so there is some potential for profit. 

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