Hot Asian Growth Stock for 2010

Since mid 2009, worldwide stock markets have seen a slow recovery. Despite the economic downturn in China in the retail sector, some companies have still been able to show sustained growth with increasing income and profits.

Once such company, China Nepstar Chain Drugstores (Symbol: npd), operates drugstores across China offering pharmaceutical products, vitamins, and products for health and hygiene. China Nepstar Chain Drug also sells other types of products that you typically in a typical Walgreens in the United States.

China Nepstar Chain Drug, Ltd. is traded on the New York Stock Exchange using American Depository Shares (ADS). You can own a small slice of this company by purchase its stock on the New York Stock Exchange. Just be sure to do your research before buying and remember that there are risks investing in any stock.

China Nepstar Chain Drug, Ltd. made its initial public offering in late 2007 on the New York Stock Exchange. Reuters reported that there were over 20 million shares being offered at $16.20. The price settled into the low teens when 2008 rolled around, and then the economic downturn took its shares down to around $4 where it sat for most of 2008. At one point it was even below $3 per share.

The company has shown an even keel in earnings to close out the year and the stock price has crept back up to around $7 a share. Revenue slipped as the economic downturn kicked in to close 2008 and the first couple quarters of 2009. Since mid 2009, China Nepstar Chain Drugstore Ltd. has shown more positive results.

Most pharmacies and small retail drug stores are still owned and operated independently in China. Large drugstore chains are not as common in China as they are in the West. Think back to how most drug stores were operated in the United States 30 or 40 years ago. They were independently run by a family or a local pharmacist who oversaw the entire operation of the store. The corner drugstore in the United States has given way to companies like Walgreens, and CVS Pharmacies. These chain drugstores dominate the urban landscape in the United States.

In its latest quarterly financial statement, China Nepstar Chain Drugstore, Ltd. stated it will continue look for more convenience store acquisitions in in urban areas of China. They will purchase small chains and more independent stores. This will allow the company to tap into the large customer base in China. They plan not only to buy or build new stores, but are also Investing in creating an improved distribution network across China to keep the new stores supplied.

According to Google Finance, the balance sheet for China Nepstar Chain Drugstore shows little to no debt. Acquisitions are being made mostly with cash raised in there stock offering. Over 1500 new stores have been opened over the past 2 years. These opening come from acquisition of smaller chains, independent owners, as well as brand new stores. As of the end of 2009, China Nepstar was operating over 2700 stores. China Nepstar Chain Drug Ltd. looks to open about a thousand more stores over the next couple of years.

The danger for this company is to become over extended because of opening too many stores. There needs to be be a balance between income being derived from operating stores, and monies that are be spent on new openings. It is quite common for new franchise or chain stores in the United States to expand too fast, and end up having to either cut operations, or close down operations. With good fiscal management, it is possible to continue to see sustained growth.

Regulatory actions by the Chinese government is another source of risk in investing in this company. Operating expenses may suddenly increase for China Nepstar Ltd. if tighter restrictions are imposed by the Chinese government. The Chinese government moved toward less state control of companies like China Nepstar Ltd. but that could always change in an instant.

Purity of Chinese products have been in the news lately. The government has taken drastic steps to ensure that there is not a re-occurrence of tainted baby formula products. One would surmise that some of these questionable products may have been sold at stores owned and operated China Nepstar Chain Drug Ltd. at one time. Unlikely as it may be, there are risks that another headline causing event may occur that would drive down stock prices.

If China Nepstar Chain Drug Chain Store Ltd. stays the course on its plan to open new stores across China with the cash they have on hand, they could be in a position to become one of the leading chain drugstores in China.

As of early January there price was hovering around the $7 on the New York Stock Exchange. The P/E for China Nepstar Chain Drug Ltd. was around 32. This running about double when compared to its American counterparts, Walgreens and CVS Pharmacy.

At a price of $7, China Nepstar Ltd. is probably priced about right. With its plan to open more stores this upcoming year, the potential for income earnings will increase. This company may not see a stock price explosion, there is an upside for sustained gradual increases in stock price for China Nepstar Chain Drug Ltd. for the upcoming year.

Disclosure: Investors should conduct their own research into individual stocks before making a purchase decision. Past stock performance is no guarantee of future price appreciation. This author may already own or make future purchases of the stocks highlighted in this article.