BYD Co. Ltd. (BYDDF.PK) is a classic example of why it is never a good idea to make investment decisions based on simple questions like "What did Warren do?" Everybody knows that MidAmerican Energy, a subsidiary of Berkshire Hathaway (BRK.A), agreed to buy a 10% stake in BYD for $230 million in September 2008. At the time, BYD was generating roughly $4 billion in annual sales that included $1.6 billion in cell phone components (43%), $1.3 billion in automobiles (31%) and $1.1 billion in batteries (26%). For the first six months of 2009, auto sales more than doubled to $1.3 billion (55%), cell phone components remained flat at $780 million (33%), and batteries fell by a third to $281 million (12%). While it started out as a battery manufacturer, BYD is currently an automaker first, a cell phone manufacturer second and a battery manufacturer by default because it needs the batteries for its core product lines. With first half sales of roughly $2.4 billion, it would be hard to classify BYD as anything other than an established manufacturer of traditional products. BYD's financial statements are available here. According to Yahoo! currency. the conversion factor between the U.S. Dollar and the Chinese Yuan is 6.8336.
So far, the one critical fact that seems to evade most commenters and investors is that MidAmerican's purchase price worked out to $1.02 per share, or 1.2x book value and 0.5x sales. Overall, the MidAmerican purchase is exactly what one would expect from Messrs. Buffett and Munger, a solid value with good growth potential. Since the Berkshire announcement (the purchase didn't actually close till July of this year), the share price of BYD has rocketed to $10.82 per share, which works out to 10x book value and 5x sales. At present, BYD has 2.275 billion outstanding shares and a market capitalization of $24.6 billion. These valuation metrics are out of line with the auto industry, out of line with the cell phone industry and out of line with the battery industry; proving once again that the value of an investment depends on your entry price. BYD was a great deal at $1.02, but it's terrible for investors at $10.82.
So I guess you just want to beat it down so you can buy one of the premier auto plays in the world for a bargain price. Their value is based on growth. Their growth factor is something that may not of been witnessed in the auto industry. China factor is in play here, more consumers than we have seen before. It looks like their economy is coming along and with that jobs so people have purchasing power. BYD has the best product that I have seen at a reasonable price, always a good combination. As far as the share price....why do they have forward P/E's that are higher for growing companies?