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Fuqi International Inc. (FUQI): Shiny Profits from China?

Fuqi International (FUQI) is a designer and maker of precious metal jewelry in China. The company produces and sells rings, bracelets, necklaces, earrings, and pendants made from precious metals such as platinum, gold, palladium, and karat gold. Fuqi International also features products with diamonds and other precious stones. Last week, the company announced that it opened its first stores in China’s capital of Beijing and another store in Shanghai, a major population center and tourist destination in China. The company now has a total of 60 stores in its home country of China.

For the third quarter, Fuqi International anticipates total wholesale revenue of approximately $75 million to $77 million, which would represent a year-over-year increase of approximately 108 percent to 114 percent, respectively. In addition, the company expects retail revenue in the third quarter of approximately $3.8 million to $4 million. Net income in the third quarter is expected to be in the range of $5.8 million to $5.9 million, or $0.26 – $0.27 per share. Fuqi International also declared its cash position to be strong enough to possibly make acquisitions. The company has almost $77 million in cash on hand.

As China’s economy boomed and its consumers prospered, this largest country in the world has also become the third-largest consumer of luxury goods, meaning Fuqi International could be hitting its stride at just the right time. The company has 20,000 products among its offerings. Two Wall Street analysts follow the company, both with “buy” ratings and an average price target for Fuqi shares of $14. Company insiders own 54 percent of Fuqi shares and 46 institutions own another 25 percent. Mutual fund owners include Marshall, TIAA-CREF and Thrivent Financial.

Shares of Fuqi International closed at $8.15 on Tuesday and have traded between $6.02 and $11.95 over the past year. The company may be considered inexpensive with a trailing 12-month price-to-earnings ratio of 6.88. Fuqi International has a market value of $139.3 million. It went public in October 2007 and was founded in 2001.

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