This Volatile Stock Has Growth Potential

China has potential, but it can also be a very scary place to invest. For most of us there's an ocean between us and company headquarters, and that can an element of fear to investing in Chinese stocks.

For traditional Chinese medicine-maker American Oriental Bioengineering (NYSE: AOB), you can magnify both of those -- potential and fear -- considerably to get one volatile stock that makes American-born stocks like Sirius XM (Nasdaq: SIRI) or Citigroup (NYSE: C) or even biotech Amgen (Nasdaq: AMGN) look like U.S. treasuries in comparison.

The stock has had a rough year. In January it bought a $70 million building to be used as a "Convention and Training Center," according to its first 8-K filing. Investors didn't take too kindly to spending that kind of cash on a building; they sent the stock down almost 22%. The Global Gains team recently visited the new headquarters, which is capable of hosting meetings with managers of all its subsidiaries -- you can see pictures here -- and concluded that the purchase wasn't all that extravagant and should benefit the company in the long term.

Then, last week, short-seller Asensio accused the company of potentially having an undisclosed relationship with the seller of the new building, causing a more than 16% drop in price. The company cleared up the issue and Asensio seems to be backing away from its accusations. But the damage is already done. If investors weren't fully aware that investing in China has risks, they do now.

But there is potential in American Oriental Bioengineering. On Friday, the company released earnings showing a 21% increase in revenue, thanks in part to acquisitions as the company moves toward being a health-care conglomerate -- a Johnson & Johnson (NYSE: JNJ) of China, if you will. Earnings per share were flat for the quarter, but there's potential for growth once China gets its health-care plan in order, and when research and development pays off down the line.

At less than nine times guided earnings this year, investors aren't putting much confidence in the company. If you've got the guts to buy, there's potential in American Oriental Bioengineering; just remember to tread lightly.