Thursday, November 6, 2014

* Kandi Technologies (KNDI) - What's Really Going On; What Measures Must Be Met from Earnings

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KNDI is trading $17.17, up 5.1% with IV30™ up 5.6%. The Symbol Summary is included below.

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Recent News: Kandi Launches Car-Share Mobile Payment Via Alibaba at Investor's Business

KNDI has booming revenue, collapsing earnings and a huge price to sales ratio.  The question is, what's driving the losses and is it "a growth story" or is it a "losing story?"  In short, when earnings come out KNDI must show increasing revenue (and positive forecasts), a steadying of gross margin % and a cler plan of how and when to control selling expenses (which are booming right now).

Now let's turn to the financial measures.

Total Revenue (TTM)
Up from $20M to now over $140M (trailing-twelve-months), in the last five-years.  This is the growth story.

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Revenue (TTM) vs. Gross Margin %
When a young firm grows revenue quickly, the next step I always take is to measure gross margin % trend. KNDI does seem to have found an equilibrium at about 20%.  I do note the peak of 25% a few years ago.  When earnings come out in a a couple of weeks, this will be a huge measure to watch. Gross margin % must stabilize.

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Gross Margin % vs. Peers
For sake of a broader picture, I have plotted KNDI's gross margin% vs its peers.The measure is low, but by no means an outlier.

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Net Income (TTM)
Well, earnings have plummeted of late.  I do note one critical observation -- these are all small numbers and there was a turn around last quarter.

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Net Income Margin % vs. R&D per Dollar of Revenue
So, let's figure out where net income losses are coming from.  If we look at R&D spent for every $1 in revenue, we can actually see a decline.  That implies two things:  

(1) Net income worsening is not due to investment in R&D.
(2) KNDI is turning away (a little) from R&D at the moment.

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Net Income Margin % vs. SG&A Expense / Operating Expense
It's hardly a needle in a haystack, but if we're looking for what's driving net income margin % down, it's simply an increase in selling, general & administrative expense. This is actually a very normal place to see expenses increases in a young firm and, of all places to see driving losses, this isn't the "worst."  Much like R&D, it's an investment in branding and selling.

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SG&A Expense / Operating Expense vs. Peers
How high is KNDI SG&A expense relative to peers?... High, but not "outlier" high.   The last two charts taken together at the very least paint a clearer picture of where the revenue is being spent.

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Price to Sales vs Peers
Everything to this point has been about KNDI the company.  This next chart is about KNDI the stock. KNDI has by far the highest price to sales valuation which is simply a reflection by the equity market of high expectations.  So, this is a glass "half full" or "half empty," depending on your assessment of the company's future.

Provided by Capital Market Laboratories

This is trade analysis, not a recommendation.

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