Chinese wealth management company Noah Holdings' (NYSE:NOAH) stock jumped 42% in the subsequent days of trading after it upped its profit outlook August 8 for the entire 2013. Already up 127% prior to raising its guidance, it's now gained 222% year-to-date. Clearly it's time to sell. Not so fast. Here's why. 
 
Two Years Earlier
Noah Holdings went public in November 2010 at $12 per share. In its first day of trading it closed at $15.99. By the time I recommended its stock in March 2011 it had settled in around $14 before tumbling all the way down below $5 by the end of September 2012. Since then it's primarily been on an uphill climb as China's economy appears to have stabilized and might even beginning to show signs of renewed growth. 
 
My premise for an investment in Noah Holdings has always been built around the idea that there is a growing need for wealth management and investment advisory services in China. Sequoia Capital's Chinese arm recognized this early on and has been a big investor since August 2007. In my original article I miscalculated when the lock-up period would end—I used 90 days instead of 180—assuming that it already had when in fact pre-IPO investors could not sell until May 9, 2011. But I also said that if the next couple of quarters (after lock-up expiry) showed that Sequoia was still holding most or all of its 5.9 million shares (21.6% of Noah's stock) then you knew it valued them at more than $16.69 per share, the closing price as of trading on May 8, 2011.
 
Indeed, Sequoia owned all 5.9 million of its shares at the end of 2012. That should have tipped investors in April when the annual report was made available and there were no changes reported by Sequoia in its holdings. In the future you might want to follow Sequoia's moves to govern your own although I don't see it selling just yet given the earnings growth announced August 8. 

SEE: Can Insiders Help You Make Better Trades?
 
The typical venture capital investment is between 7-10 years, which suggests Sequoia could starting selling shares in the next 6-12 months—or it could hang on for another four years obtaining an even bigger payday for its investors. Time will tell but either way the VC has made out beautifully.
 
Upside Potential
As recently as May 6 it projected that its adjusted net income for 2013 would be $37 million. Three months later it upped this number to $55 million, 45% higher than in May. Year-over-year, should it hit its projection, adjusted net income in 2013 will increase by 105%. Oppenheimer & Co. analyst Ella Ji raised Noah's rating from "market perform" to "outperform" on the increased guidance suggesting, "The big growth is likely to benefit from its good performance in its real-estate fund management business." Whatever the reason, when you're doubling your earnings, the traditional financial metrics fail to apply.
 
Noah Holdings and Asset Management Peers

Company P/B
Noah Holdings 4.9
Evercore Partners (NYSE:EVR) 3.5
Gluskin Sheff & Associates (TSE:GS.TO) 8.3
Ameriprise (NYSE:AMP) 2.1
Greenhill & Co. (NYSE:GHL) 5.6

Noah Holdings' operating margin is better than most of its asset management peers with the exception of Gluskin Sheff. Growing its revenues faster than all of them, it could be generating $200 million in net income within 3-5 years. That's earnings per share of $3.65 or a forward 2018 P/E of 5. Multiply that by three given its earnings growth and you get a stock price of $55. Assuming it does this by August 2018, you're looking at an annualized compound annual growth rate of 24.5%. That's nothing to sneeze at. 
 
Bottom Line
Unless something unexpected happens in China, I believe that Noah Holdings is properly positioned to take advantage of the growing affluent class in that country. Will it go straight up to $55 over the next five years? I doubt it. In fact, it could get pretty darn volatile. Use that to your advantage and buy its stock whenever there's a big decline in its share price. Since its IPO in 2010, it has seen five declines of 33% or more with each decline lasting no more than three months in length and no less than three weeks. If you see it lose more than 10% over a three-week period—buy away. ) 
 
Its future appears bright. 

Disclosure: At the time of writing, the author did not own shares of any company mentioned in this article.

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