One definition of insanity is doing the same thing over and over again and expecting different results. The company has been executing beautifully and reinvesting all it's earnings for future growth. Classic growth strategy for a young company. We get it. The problem as it pertains to the rto's is that the market isn't normal. Under nolrmal circumstances there would be Merger and Aquisition players that would kept these share prices at much higher levels, lest they be taken over. No M&A in China at this time.
Last year the forward pe's were 6-8. This year the pe's are 3-6. Do we continue to do the same old same old untill the pe's are .05-2
Many say you must have patience, give it time and the market madness will abate. I use to be part of that crowd. No longer and there is a reason that changed my mind. There is a danger in waiting that wasn't in play a short time ago. Going private. Let me explain. With most rto's management own a large number of shares. This ownership combined with China policy gives management a huge leg up in determining what happens to the company. We shareholders have little to no recourse. Many of these companies are cash rich and generating huge amounts of cash flow. Sitting on the sidelines, salivating mightily, are the hedge fund vulture types looking to get into the game. They see huge value in these fatted cash cows and want a chance to plunder. Here's how they get their chance to once again screw the little guy. They approach management and explain to them how easy it would be to go private. They will use the cash on hand, future cash flow and money injected by the hedge fund, for a piece of the company of course, to fund the purchase. They go prvate, delist and relist on a different exchange at much higher pe's,
We shareholders will be offered a 30 to 40 per cent premium to market for our greatly undervalued shares. Many within our group are so disenheartened by the battering we've received that they will welcome the offer, while in fact they are being rolled. Did you notice that in this scenario that reivesting the earnings for future growth has been back burnered by management? It's amazing how self interest would finally change the mind of management. Going private is a recent phenomenon but it will increase as the valuations go lower. One of the eight rto's that I own, fsin, is in the process now.
Management has to do something, now. Either a break the bank type buy back or an as generous as possible quarterly dividend even if they have to curtail growth
A question for those that would grow the company at any cost. Would you prefer that the share price doubled and the company grew at 20 per cent or that the share price remained the same and the company contined to grow at 40 per cent? Before you answer, bear in mind, that you may be bought out at any time with a 30 to 40 per cent premium.
The problem with the buyback is that none of the original mamagement who control most of the shares are going to sell for $9 when the shares are worth $20. That leaves the public float which is already too small to allow funds in without seriously moving the stock. So a buyback is counter-productive unless they can convince those due the incentive shares to take cash instead.
Of course the problem with that idea is that cash is what allows the business to thrive. The more the cash they have the more rooms they can operate and the more money they make.
i hear what you are saying relative to RTO's, it's just brutal out there. But.........you knew there would be a but........AERL is about to file its FIRST annual report since the acquisition. Funds and analysts are still getting comfortable with them. I wouldn't give up on the hope for a upper teen stock price until the 20-F is issued, an announcement (potentially) on expansion in to the Galaxy is announced, and an analyst or two pick up coverage.