The stock price of China Education Alliance (NYSE: CEU) is cheap by any metric.  The question is: “Why is China Education Alliance trading at an 8 P/E in an industry that trades at 22 P/E, particularly when the company has $2.17 per share in cash, or $69 million.  The stock is up from $2.45 last May and has been as high as $7.48, but is currently trading at $4.72.

The education sector has grown at an average of 9.7% per year over the last 30 years in China.  CEU is flush with cash, $69 million, and will deploy the capital to acquire profitable education companies.  We cannot predict with certainty when an acquisition will be completed, but when it happens and is announced, investors want to be in the stock long before then.  At some point in time CEU will trade at a fair market value, which is 20x EPS in line with EDU, CAST, and CEDU.  At 20x EPS the stock would trade in the $11-$12 range.  The Company projects 30% growth top and bottom line in fiscal 2010.  At current price levels, this is one of the best buys in the RedChip portfolio.

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