With a market cap of only $6.7 million, Kingtone Wirelessinfo Solutions Holding Ltd (NASDAQ:KONE) is hardly a commonly-held Chinese equity. And, with a big plunge in last year's revenue - from $14.5 million to $6.3 million - it's not like the company did itself any favors on that front. Yet, there's something peculiarly compelling about KONE today that might make it worth a closer look.
Kingtone Wirelessinfo Solutions Holding designs, plans, and installs enterprise-level wireless communications technologies. Contrary to what it sounds like, the company's clients aren't mobile phone companies. KONE. It's clients are Chinese corporations and government entities that need a way to maintain communications among multiple locations, but can't use a hard line (wire) to do it. Police departments, news departments from TV stations, and industrial factories are all potential clients. And, the company has at least one customer in almost every Chinese province.
That demand, however, sure didn't help the stock in 2011. After peaking at $5.47 in late 2010, KONE dwindled down to a low of $0.31 by late 2011, mirroring the company's waning revenue and profits. As is so often the case though, the punishment the market inflicted on the shares was far greater than the struggle Kingtone Wirelessinfo Solutions Holding ran into. And, the stock is priced at a rock-bottom P/E of 1.0.
As of today, it looks like the market is finally ready to recognize the mistake.
The clue is the shape and scope of today's bar. Despite a rather weak open at $0.41, KONE has snapped back to $0.48.... the upper side of the recent trading range. Indeed, it had been as high as $0.54 before running into the 100-day moving average line there - a fairly predictable ceiling. In fact, it's so predictable, traders may not want to assume the worst here, but rather, wait and see if the market makes another run on the $0.54 mark; the second effort may be the one to get it over the hurdle.
In fact, with the way volume's pouring in, it would be surprising if the bulls didn't make that second effort with Kingtone Wirelessinfo Solutions Holding.
At the heart of the matter, however, is underlying results. As was noted, Kingtone had a pretty miserable 2011, losing $1.0 million on only $6.3 million in sales. It's a far cry from the prior year's top line of $14.5 million and bottom line of $8.2 million. Yet, the shape of today's bar (also as already noted) says the market is starting to warm up to KONE again.
The reason for the renewed interest isn't clear, as there's no guidance or analyst estimate of income available. The lack of perspective is irrelevant to short-term traders though, as the stock clearly is moving, good reason or not. Thing is, the brewing short-term bullishness may end up sparking a longer-term move from Kingtone, which was mercilessly beaten up last year. Sometimes the best stock moves are the ones that make little sense when they start.