Thursday, 11 June 2020

A Thin Float Stock With Over 4x Upside

KBS Fashion Group Limited (KBSF)
Current Price: $2.21
Target Price: $10.00
Upside Potential: 352%
Market Cap: $5.73 million
Shares Outstanding: 2.59 million
Float: 1.46 million

Chinese small float stocks have been on fire lately. Many have been increasing out of nowhere as traders are looking for the next big thing. Wah Fu Education Group Limited (WAFU) increased 218% on Thursday to close at $7.15, but traded as high as $15.39. On Wednesday, Jiayin Group Inc. (JFIN) increased by 10 times up to a price of $30 before giving back almost all of those gains. Other companies such China Finance Online Co. Limited (JRJC), Wins Finance Holdings Inc. (WINS), Fuwei Films (Holdings) Co., Ltd. (FFHL), Fujian Blue Hat Interactive Entertainment Technology Ltd. (BHAT) and China Ceramics Co., Ltd. (CCCL), among others, have seen a surge in volatility and volume.

But one stock stands out as having the best upside potential of them all, KBS Fashion Group Limited (KBSF). First, at a $5.73 million market cap it is the cheapest stock out of all the China plays listed on a major US exchange according to Finviz. It has a float of only 1.46 million. It recently started making masks in order to serve the COVID-19 pandemic. But most important of all, it has one of the best set of financials you will see out of these small float stocks, both on the balance sheet and income statement. All of this justifies a target price that is multiples of its close on Thursday. Unlike most of its peers, KBSF kept its gains made on Thursday morning, ending the day up 16%. But then it ran an additional 29% after hours. This bodes very well for trading on Friday.


We have a positive history with KBSF as it is one of our best calls of all-time. On February 9, 2017, we released "KBSF: Undervalued Microcap Set For Post-RS Run Like DRYS, ETRM or IPDN" when the stock closed at $2.85 on the previous day:


The stock shot up to as high as $18.00 in the three trading days following the report:


The call was a big boost to our site's popularity and since then we have increased our follow count by more than tenfold. We are up to 894 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history such as our call on KBSF. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel as well as follow our Small Caps, Big Gains blog where we put up our Canadian picks. You can also follow us on Twitter @StockTradePicks which has over 4,400 followers.

KBSF recently released its annual report with Q1 2020 expected in the coming days. The annual report shows how easily we can justify the high target price when looking at the financial statements:








2019 was a breakout year for the company's operations. While revenue declined from $18.5 million to $16.5 million on the year, the company finally found a way to become profitable. Previous years saw it lose in the multi-millions, but it actually achieved an operating profit of $405,000 in 2019. It only had a loss on the bottom line because of taxes and the currency translation loss. To go from $20 million losses to a slight gain is an incredible turnaround. The company's average shares outstanding only increased 13% on the year from 2.2 million to 2.5 million. So this is not like a typical microcap company that heavily dilutes.

The real key to KBSF being such a deal is its balance sheet. It has:
  • $20.6 million in cash, or about $7.96 per share
  • Net cash (cash less liabilities) of $14 million, or about $5.40 per share
  • Working capital (current assets less liabilities) of $26.1 million, or about $10.07 per share
  • Total shareholder's equity of $54.4 million, or $21.02 in book value per share.
KBSF is trading at less than half of its net cash value and barely over 10% of its book value. With it now pulling slight profits, $5 should be seen as a minimum share price floor with a target price in excess of $10 being justifiable. But given the current climate where Chinese stocks move up 500% in day combined with KBSF's extremely tight float and its history of making massive moves, the sky's the limit on where the stock price could go.

Disclosure: We are long KBSF

What's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.

There are also some good books available on microcap stocks and day trading such as:

Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of

How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology

How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology

A Beginner's Guide to Day Trading Online (2nd edition)

Stock Investing for Beginners: Marijuana Stocks


Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:

The dividend stock report from dividendstocksonline.com

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