Call it an earnings season hangover. Call it profit taking. Or call it a technical reverse. Just don’t call it a good day on Wall Street.

With the equities market down by over 1% at the moment, investors who got in at the recent highs are wondering what in the world they may have gotten themselves into. A slew of the markets most-popular investments of late are taking it square on the chin.

General Electric (NYSE:GE) is down by over 3%. Harley Davidson (NYSE:HOG) is down by nearly 3.5%. And Chevron (NYSE:CVX), a TFN Strategic Trader short position, is down by another 1.2% today after dropping by an equal proportion tomorrow.

The breadth of the decline is wide and getting even wider.

If you read my commentary yesterday, you know the downturn is far from a surprise. Even better, you know how bullish I am on Asian markets.

Just to prove the potential in Asia, I want to look at a winner in China’s growing economy.

While the rest of the world contemplates just how an economy can grow without the creation of new jobs, companies like SmartHeat Inc. (NASDAQ:HEAT) are producing record-breaking earnings.

No artificial growth here

Although China is not on a politically motivated, Al Gore-type environmental kick, there is no doubt the expanding country is working to clean up its smog-filled air. Companies like SmartHeat are taking full advantage of the initiative.

SmartHeat works to build a variety of heat exchangers and temperature meters. Its products allow companies to increase their heating efficiency, which helps lower heating costs and reduces emissions.

While this morning’s earnings report from the company has plenty of useful information, one line by the company’s CEO, James Jun Wang, stands out:

“The current economic slowdown has significantly increased customer awareness towards utilization of energy savings equipment from which we are a primary beneficiary. SmartHeat is well positioned to potentially reap significant benefits from the world’s economic recovery.”

The company backed up the statement with a revenue figure that grew by 125% from this time last year. While $12.5 million is a miniscule figure in today’s world of billion-dollar conglomerates, the fact that the company managed to turn the income into a profit of $2.6 million (up 257%) solidifies the idea that SmartHeat is far from a speculative play.

The company has a high-demand profit and is profiting from it.

Going forward, SmartHeat has boosted its full-year outlook and expects the Asian recovery to treat the company well. Next quarter, Wang expects revenue of $35 million, almost three times last quarter’s figures.

Shareholders have been treated well by the bullish news, with the stock up by double-digit proportions today.

With such quickly growing figures, the markets are naturally going to have a tough time determining the company’s fair value.

Right now, using the old earnings figures, the company has a price-to-earnings ratio of about 35. But when I plug in the estimated $15.5 million in annual earnings announced this morning, that critical figure drops to just 14.7, high but not too high.

To include the high-flying growth in the valuation equation, we have to divide the P/E figure by its anticipated earnings growth. In this case, the company earned $6.3 million in 2008, giving us a denominator of about 150.

Crunching the numbers, it gives us a PEG of an ultra-low 0.01, making shares of SmartHeat well worth the $9.75 they are currently trading for… if the earnings predictions come true.

Take a look at the company and see what you. Just don’t say we don’t ever give you anything for free.

Source: A Hot Stock in a Cool Market