Every now and then I like to give guest authors a chance to share their views either on the stocks that I already cover, or names that I don’t, but that I feel would benefit my readers. Some of these author’s viewpoints agree with mine, and some don’t.

I feel that the more information you have about a particular company, stock or the market in general, the better decisions you can make regarding your investments and what actions you should take in regards to those investments.

Today’s guest author is Glen Bradford, he runs his own blog, GlenBradford.com.

Glen is an MBA at Purdue University that’s investing his entire college tuition in the stock market.

He writes for seekingalpha.com and stockpickr.com and I like his approach to investing and feel that it gives us another angle when looking for new places to park our money.

Glen will be presenting his investing thesis on a company called Gold Horse International (NASDAQ: GHII.OB).

Please note that this is not a formal recommendation, just an information piece designed to allow you access to companies that I might never cover, but that are worth a look for your portfolio.

Get Gold for Nothing!

By Guest Columnist: Glen Bradford, GlenBradford.com

Gold Horse International (NASDAQ: GHII.OB) is likable for two nerdy reasons.

They’re presently selling at a PE ratio that’s less than one and at about 20% of book value (the theoretical value of the company if it’s liquidated). Their nearest forecast looking on fiscal year 2009 indicates revenue growth of 30%. That would be a forecast of $90M compared to the last fiscal year of $66.9M.

What’s the deal? According to the CFO Adam Wasserman, the issue is publicity, implying that the supply and demand characteristics for owning this stock are out of whack because not enough people know about it. If you ask me, this is an opportunity to capitalize on a great company with lots of potential and get your investment back in earnings per share over the next year.

How is it almost free?

Based on the premise that their EPS is higher than their current share price and is set to increase, you’re getting back your initial investment within the year and you’re buying the shareholders’ equity at 1/5 of face value. To me, this feels like going and buying a new car for $3,000 and driving it for a year or two and then selling it back for $10,000.

Who are they, and what do they do?

Gold Horse is a micro-cap company that operates in a very small niche market that exists in Hohhot, China.

According to their 2007 investor presentation, “Hohhot’s growth rate ranked the second of the 27 provincial capital cities in China.”

There, Gold Horse runs a hotel, a real estate development business and a construction company.

Most of their money comes from the construction side of the business.

In fact, they’re building an Inner Mongolia Electrical Vocational Technical School and they’ve been talking about building a 45MW windfarm, of which the company has been looking for the initial $30M to get the ball rolling.

Based on how Gold Horse is wrapping up several projects by December and appears to have a healthy pipeline of new work, I’m confident that the windfarm deal will become a reality.

Unfortunately, I have no clue as to the balance sheet ramifications of winning this project.

It looks like it will cost about $70M and based on their high rates of return on their other projects, this would be equal to their entire 2008 revenue and position Gold Horse strategically as a company that can build wind power in another growing niche market.

As far as reading their quarterly earnings reports goes, their year over year percent increases aren’t really that big of a deal because it simply reflects what they’ve been doing since they went public.

Basically, what it all boils down to is that I see a company that has a leader in place who has been doing this stuff for over 20 years and has great ties with the local Chinese government.

This looks even better with the Chinese stimulus package that was just recently announced.

Consider the fact that the Yuan has been artificially deflated for several years to boost exports and they’ve done this by buying many dollars to promote American consumption of their exports. Then, it looks like China is trying to spur growth from within now, instead of relying on the U.S. consumer.

GHII is going to benefit 2 ways.

The first is that the money they make will be worth more in U.S. dollars, assuming that eventually the Yuan raises against the dollar.

The second is that GHII will benefit from the stimulus that’s designed to pretty much help companies like Gold Horse.

When I tell my roommate I found a company with a PE ratio less than one, he tells me that it’s a bad company.

Generally speaking — when the market is pricing a company correctly — he’s absolutely correct. A PE of 1 implies that the company is shrinking. But, looking at this company from my standpoint, it appears to be significantly oversold for no particular reason.

Finally, the company is trading down significantly from it’s 52 week high. In fact, to reach its 52-week high, the stock price needs to double once, then double again and keep doubling until it’s doubled 5 times for a 2700% increase.

Technically speaking, if I was a corporate raider, I would consider buying a little over the voting majority and consider making them pay out a 100% dividend to common shareholders. Is it possible? Yes. Will it happen? No.

Look to the daily trading volumes and price volatility of Gold Horse.

The first thing you should notice is that even on the more volatile trading days, the daily trading volumes are less than 500K and that there’s around 52M shares outstanding.

So, on a volatile day, you’re seeing 1% of the company change hands and the price fluctuate 20%. Take this into account and the corporate raider strategy slowly deteriorates because the raider would end up driving up the stock price to at least book value before he gets his share.

Either way, there is something here for those that are risk tolerant, and looking for a more speculative Chinese play that would require much more due diligence on your part.

Disclaimer: Glen owns GHII.OB.

Today’s guest author is Glen Bradford, he runs his own blog, GlenBradford.com. Glen is an MBA at Purdue University that’s investing his entire college tuition in the stock market.

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