China New Media’s (OTCBB: CMDI) IPO in late December presented some significant excitement for investors. Shares in the China-based outdoor advertising company initially traded at $2.04, but within just a few trading days climbed to a high of $3.99. The stock soon stabilized from the premature run-up and has pulled back to around $2.50 offering investors a good time to revisit the fundamentals of this profitable and rapidly growing Chinese small-cap.

1. CMDI is the dominant advertisement firm in Dalian, the commercial center of northeast China. The Company focuses its business on outdoor advertising, a sector which has consistently shown double-digit growth in the last decade.

Source: Company Presentation

2. The Company’s long-term client base includes top companies such as China Mobile (NYSE: CHL), IKEA, China Unicom (NYSE: CHU), Coca-Cola (NYSE: KO), Pepsi (NYSE: PEP), and UPS (NYSE: UPS). Client contracts can extend up to three years.

3. Currently in buses, bus shelters, train platforms, billboards, and LED displays in high- traffic areas, the Company has recently launched its innovative City Navigator product. Combining a large LED outdoor advertisement with an internet connected multimedia kiosk, City Navigator provides pedestrians with information and ads for local businesses.

City Navigator unit in operation in Dalian, China

4. Future expansion plans include penetrating Shenyang and Tianjin, the two largest cities in north China (excluding Beijing). With the planned expansion, CMDI could more than quadruple revenue.

5. The stock currently trades at a P/E ratio of 11x projected 2011 earnings in a peer group that trades on average 20x. If CMDI traded at a 20x forward P/E the stock would be $5.

CMDI achieved enormous growth in 2009 with revenues up 57% and earnings up 155% over 2008. Net margin improved drastically over the same period to over 34% and management expects profit margins to increase further over the next 2-4 years.

Operating in a still a fragmented industry in China, CMDI has the potential to not only grow profits but also increase market share (currently at a healthy 40%). With China now the world’s second largest advertisement market, CMDI has a lot of room to grow ….. so maybe there’s six reasons to invest.

Disclosure: The subject securities are clients of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.