The huge run for Small-Cap Star company Kandi Technologies (KNDI) made another advance on Monday after news broke over the weekend that the company is profitable and plans to expand its electric car rental services to new cities in China. Shares traded over 13 percent higher after Kandi Chairman Hu Xiaoming sat down with Bloomberg at the company’s offices in Hangzhou on Friday and revealed that the company was planning expansion into cities like Beijing and Shanghai.
“I have been meeting local officials from other cities who have been visiting our company almost daily in the past few months,” he said. “They are very interested in our model and keen on promoting use of electric vehicles in their cities.”
Kandi designs, develops, and manufactures electric cars and runs programs that allow city residents to rent the vehicles at a rate lower than it would cost to hire a cab. So far, the company’s been focused in its home city of Hangzhou, but news that it intends to expand could mean big things.
“Kandi’s business model can bypass obstacles in the promotion of electric cars such as inconvenience of charging,” said Guotai Junan Securities analyst Harry Chen. “By expanding into more cities, it will help stimulate the overall electrical vehicle business in China.”
Kandi Technologies is among the top-performing Small-Cap Stars, quadrupling in value over the last year. The company’s run is not without naysayers, though, as the stock currently has a short float of over 20 percent.
Looking at an Equities.com EVA Report on the stock, it’s clear that Kandi investors have some reason for optimism, though. The company may have reported a loss for Q3 last year, but it came after three-straight profitable quarters. Kandi also has climbing revenues, with 2012 showing a 60-percent jump from 2011. While Kandi hasn’t released its Q4 2013 earnings report yet, revenue for the first three quarters was at $58.64 million, making it seem more than likely it will ultimately show an increase over 2012’s $64.51 million.
Using the DuPont System of analysis could also give a little more insight into the stock’s strengths and weaknesses. Looking at the DuPont Report, Kandi is beating the industry average for return on equity (ROE) by a significant margin. However, it’s doing this despite coming in well below industry average in terms of its asset turnover and just below industry average on its equity multiplier.
While the big gap in asset turnover would have to be a concern, the fact that the equity multiplier is below average and not be a huge gap is less of a concern. Even so, both of these figures appear to be trending in the wrong direction, which is likely at least partially responsible for motivating the one in five shareholders who are shorting this stock.
However, looking at the company’s net margin may give more insight into why Kandi’s currently on such a strong run. The company is well ahead of industry average in this key category, and has shown considerable year-over-year improvement there from 2011 to 2012.
Kandi’s fundamentals seem to indicate that its rapid growth is justified and that it has the potential to continue these gains, but only time will tell if the shorts are on the right side of things or not.