This Fortune-maker Just Waiting for a Sentiment Change

One of my favorite small companies just reported excellent financial growth. Right now, the stock market isn’t much interested in companies like this one, but eventually sentiment will change and small growth stocks will be back in favor.

China Security & Surveillance Technology, Inc. (NYSE/CSR) is a kind of industry consolidator in the security business in China. Just think about the potential for alarm systems, surveillance cameras, fencing, water extinguishing systems, to name just a few. Every new building, factory or plant built in China pretty much has to have these kinds of systems installed.

China Security manufactures and installs security and surveillance systems through its wholly owned subsidiary, Golden Group Corporation (Shenzhen) Limited. The company has a manufacturing facility located in Shenzhen, China, and a research collaboration agreement with Beijing University.

According to China Security, its second-quarter revenues grew an impressive 78% to almost ninety-three million dollars, up substantially from revenues of just over fifty-two million generated in the second quarter of 2007. What’s most impressive is that the majority of this growth came organically, representing some sixty-eight and a half million dollars of total second-quarter revenues.

The company reported that its gross margin for the second quarter grew to 32.8%, as compared to 28.6% in the comparable quarter. Gross margin was also up sequentially from 30.5% generated in the first quarter of 2008.

Net income grew 81% to $7.74 million, or $0.17 per share, up solidly from net income of $4.27 million, or $0.11 per share, generated in the second quarter of 2007.

In the upcoming third quarter, China Security expects to break the one-hundred-million-dollars-per-quarter revenue mark. For all of 2008, total sales are expected to break four hundred million dollars.

The great thing about this company in my view is that it remains very reasonably priced on the stock market. China Security has over one hundred and thirty million dollars in debt, but it also has a lot of cash available and there remain all kinds of acquisitions for China Security to consider for the future.

Like I wrote previously, companies like China Security are out of favor in this market. When they come back into favor, I have no doubt fortunes will be made once again.