Xinyuan Real Estate – and Jim Rogers – suggest Chinese real estate is recovering

Declining growth in China has caused concern about its real estate market, with stories and videos of Chinese “ghost cities” appearing in news around the world. Legendary investor Jim Rogers however, declared in a recent interview that this concern is overstated.

Image courtesy of Wikipedia user FDV:

Legendary investor Jim Rogers rocking the bow-tie styles in Madrid

The share price performance and technical indicators of Xinyuan Real Estate Co., (XIN, quote), a residential construction company based in Beijing, certainly buttress the position of Rogers.

Rogers said to Seeking Alpha that he believes the Chinese real estate market is recovering, not forming a bubble:

“It was a bubble in urban coastal real estate. But China, for the past three years, has been trying to pop that bubble. And the bubble has popped. You could certainly go down further, but I wouldn’t say there’s a bubble there now. Prices are coming down, transactions are coming down and people are losing money. I don’t know how long China will stay tough. I would hope they’d stay tough much longer, because they’ve got to kill inflation too.

But if anybody thinks there’s a bubble in China, they haven’t been doing their homework. The bubble popped. Prices have come down and are continuing to come down.”

The indicators of Xinyuan Real Estate, both financial and technical, are very strong. Year to date, the stock has risen by 93.71%. Over the last 52 weeks of market action, it’s up 58.41%, and XIN has remained strong, rising 20.21% for the last month of trading.

The trend is the friend of the shareholders in the company. It’s trading above the 20-day, 50-day and 200-day moving averages. As XIN is trading so much higher above its 50-day and 200-day moving indicators, it might give caution to investors. That said, it’s more than 2.5% above the 20-day moving average with very strong volume.

Of concern to traders is the candlestick patterns for Xinyuan Real Estate. Recent action has them long and negative, which is very bearish. As a result, the stock has fallen 2.59% for the last week of trading. XIN is still trading well above the bottom Bollinger Band, however.

What is bullish about Xinyuan Real Estate, however, and separates it from so many home builders around the globe, is a relatively clean balance sheet and very strong income statement.

XIN has a modest level of debt. The short float is miniscule at only 0.39%, revealing investors do not expect the share price to fall (a short float of 5% is considered troubling). By comparison, U.S. home builder Standard Pacific (SPF, quote) has a short float of 16.39%. The exchange traded fund for the home builder industry – the SPDR Home Builder (XHB, quote), has a short float of 24.38%.

On a quarterly basis, both sales and earnings-per-share growth are also up for Xinyuan Real Estate. This year, earnings-per-share growth is higher by more than 100%. Sales are up in double digits for both the past quarter and last five years. The price-to-sales ratio is just 0.36. The price-to-book ratio for XIN is only 0.51.

Based on the balance sheet, income statement and stock performance of Xinyuan Real Estate, Jim Rogers appears to be right about the real estate market in China.

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