Kandi Technologies: The Drop Is a Buying Opportunity
Despite a booming market for electric vehicles in China, Kandi Technologies (KNDI) stock has lost around 60% of its value in 2015. This seems unjustified, especially considering that Kandi's financial performance has been improving at a rapid pace.
For example, last quarter, Kandi reported revenue of $48 million, up 45.5% from the same period last year. In addition, Kandi declared second quarter net income of $4.9 million, up from $3.2 million in the second quarter of 2014. The growth in net income was mainly driven by lower operating expenses in the quarter.
Why Kandi will continue improving
Looking ahead, I think that Kandi will be able to sustain this level of performance as the company will benefit from a rapid increase in demand for new electric vehicles in China, its home market.
"In Shanghai, the city's government plans to build 6,000 charging points by 2015, while it has a target of 13,000 alternative-energy vehicles on its roads during the same time frame. It's also working with companies including Bayerische Motoren Werke AG to build charging facilities."
Hence, the opportunity in the Chinese market is strong and Kandi is adopting smart moves to make the most of it.
Kandi is witnessing robust growth in its EV parts and EV product sales. Sales of EV parts last quarter grew 168.3% year-over-year. Meanwhile, Kandi's JV company successfully introduced the direct sales initiative during April, and sold 643 EV products during the second quarter. In addition, through its joint venture, Kandi sold 3,803 EV products to the Micro Public Transportation initiative. All in all, the joint venture recorded net sales of 4,446 EV products last quarter. In addition, the company's new model, the K17 Kandi Cyclone, is now available for sale from the beginning of the third quarter.
Apart from the introduction of new models to improve its market, Kandi is also investing in infrastructure. As a part of this initiative, Kandi has strategically entered into a key partnership with ZTE Corporation to enhance its micro public transportation program.
In addition, in June, Kandi entered into a strategic deal with Alibaba (China) Company Limited, through which Kandi brand EVs are eligible to use Alibaba as their operating system. Kandi's vehicles will use Alibaba's technology when connecting separate platform accounts to integrate the Internet Plus platform into its core electric vehicle technologies. This planned agreement with Alibaba is forecasted to improve the intelligence of Kandi's EV products and therefore enhance user experience.
Kandi's agreements with ZTE and Alibaba will substantially expand its market share and provide it with superior technological capabilities to increasingly develop and deploy new products and services.
Analyst sentiment and conclusion
TheStreet ratings team rates Kandi Technologies Group as a "Hold" with a ratings score of C, primarily driven by a mix of factors, both positive and negative. Kandi's major strengths include its solid revenue growth, strong financial position with low debt levels and a substantial return on equity. Contrastingly, certain weaknesses include disappointing operating cash flows, weak profit margins, and a generally poor stock performance.
However, I think that since Kandi is a growth stage company, investors should not focus on the cash flow, and the company's high debt will allow it to fund its expansion moves going forward. Moreover, the company's profit margin of 14.17% seems satisfactory, especially considering that rival Tesla has a negative profit margin of 14%. As a result, Kandi Technologies' weak performance in 2015 is an opportunity to buy more shares of this fast-growing EV company.