General Steel Earnings — in-line, big charge

By Travis Johnson, Stock Gumshoe, August 14, 2008

GSI posted earnings that were just about in-line with analyst estimates of 13 cents a share in profit, though they had a big derivative writedown that gave them an accounting loss for the quarter. Sales were significantly higher than estimates, beating by about 10%. Volumes just about doubled in the quarter, thanks to the big acquisition of Longmen Steel.

No big news, in other words — except for that big chunk of derivatives writedowns. The market seemed rather complacent following earnings, the shares dipped by perhaps 1%, though they’re already down about 20% since I wrote about them. Most similar firms that are small, growing Chinese firms are also getting clobbered, including Hanfeng which I own and wrote about, and American Oriental Bioengineering (which I have a calendar call spread order in for, but don’t yet own) among many others. I am still confident in the China growth story over the long term, especially for small companies that are run by entrepreneurial managers with good government connections, but it will probably continue to be a bumpy ride. I still think GSI has good prospects, but if I didn’t own any of the companies I would buy both Seadrill and Hanfeng before GSI (actually, that’s exactly what I’ve done — I picked up a few more Hanfeng shares today).

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