Growing Stock Has Good Potential

Back in early August, I wrote about a very interesting company called China Security & Surveillance Technology, Inc. (NYSE/CSR). This company has a booming business in China and beyond, selling both basic and sophisticated security systems to corporate and government customers.

The company is also a kind of industry consolidator in the security business. It has made a number of acquisitions in the past, and hopes to do more in the future. CSR’s business plan is to target buildings, factories and entire cities as customers. Imagine the growth in China’s economy and imagine that, for every new building, factory or plant, some sort of security systems needs to be installed.

In its second quarter this year, the company’s revenues grew 78% to almost ninety-three million dollars, up from revenues of fifty-two million dollars generated in the second quarter 2007. Most of this growth came organically. Net income for the latest quarter grew 81% to $7.74 million, or $0.17 per share, up substantially from net income of $4.27 million, or $0.11 per share, generated in the second quarter 2007.

Recently, CSR announced that it had signed a framework agreement for some forty-four million dollars in new contracts with the City of Shouguang, China. That city wants to install a major surveillance system throughout its city limits.

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The company also just signed an agreement with a local contractor in Nanjing City, China, for some twenty-nine million dollars in new business. CSR is being contracted to build a fully integrated security network in Nanjing City’s “High-Tech Zone,” which will include the installation of security cameras and biological detectors.

When you think of infrastructure growth, you don’t often think about security systems, but if you really think about it, there’s no building of any size that doesn’t have one.

Since I wrote about CSR in this column, the stock hasn’t done anything but tick modestly lower due to the substantial weakness in the broader market. I don’t know what this stock is going to do over the near term, but it seems to me that this business is being valued by the stock market very reasonably.