Longwei Petroleum Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese energy company Longwei Petroleum (ASE: LPH) were lighting up investors' lives today, gaining as much as 18% in intraday trading after the company announced results for its fiscal fourth quarter.

So what: The results for the full fiscal 2011 looked very solid for Longwei with revenue jumping 40% and operating income climbing 42%. However, on a quarterly basis it was a little less impressive, as revenue was up a less-spectacular 11% and operating income gained 18%. That shouldn't be all that surprising given that the company's growth was driven primarily by acquisitions.

Also notable was the company's strong cash flow from operations -- although all of that cash, and then some, is going out the door to fund new capital spending.

Now what: Longwei's stock currently trades at $1.17, even after today's gain. Diluted earnings per share for fiscal 2011 were $0.61. If that strikes you as silly, that's because it is. Investors are still deeply skeptical of small-cap Chinese companies trading on U.S. exchanges thanks to the cadre of Chinese companies that turned out to be frauds. That means that many stocks are trading at what look like absurd multiples. What's the solution to bring back confidence again? This Fool simply doesn't know. However, what I do know is that the companies that are proven legitimate will likely prove huge winners for investors.

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At the time this article was published Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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