Time to Wade Into China New Borun (BORN)

With a market cap of only $60 million and practically no trading volume until last month, odds are good you and most of your trading friends have ever even heard of China New Borun Corp. (NYSE:BORN). That doesn't mean it can't become a good trading opportunity, however. In fact, BORN has become a good trading opportunity, especially this week.

First and foremost, BORN is a maker and distributor of distilled spirits - booze, in the American vernacular - in China. Business had been good, and growing, through 2011, but China New Borun hit a rough patch in the latter part of 2012 that caused its top line to fall from 2011's 2.38 billion yuan to 2.58 billion yuan for 2012. Net income was nearly cut in half.

As most folks know, however, things (and fortunes) change. Though China New Borun was steadily seeing revenue decline for a few quarters in a row, the second quarter of this year was a decidedly good one with revenue of 628 million yuan and a profit of 25.5 million yuan. It was the first sequential increase for both measures in several quarters. As for yesterday's Q3 numbers, they were.... not great. The top line fell on a year-over-year basis as well as on a sequential basis, to 559.2 million yuan. Income also fell on a year-over-year and a sequential basis, to 24.8 million yuan. Yet, somehow, the market sees something positive about third quarter's and future results. And, that perception is more important than actual numbers right now. In other words, let's trust the chart more than the results, since the stock's price is our primary concern. On than note...

As for as the market is concerned, BORN started its recovery back in October with a huge high-volume surge. Problem: It was too much, too fast. Sure enough, China New Borun Corp. shares pulled back and likely discouraged a swath of traders. The dust has settled, however, and now BORN is getting its second wind... the one that's unfurling as a more sustainable pace. Volume is healthy, but not overdone. It's all the kind of thing traders who didn't get in on the first bullish salvo want to see (and they're getting in at a better price).

Any newcomers to China New Borun will want to bear in mind this is still just a trade and not an investment, as the results don't actually support long-term bullishness for BORN again. However, the market's perception has turned optimistic, and that could lift the stock nicely for a few days.

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