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VisionChina Media Inc. Message Board

  • alcheo alcheo Apr 20, 2009 11:00 PM Flag

    Lets back out the cash....

    ... of $2.30 from $5.50. Gives us $3.20 per share for the a business looking to generate about 80 cents per share. PE of 4 for a 50% grower... amazed!

    Picked up more at 5.49.

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    • Once the ARs are collected the operating cash flow will sky rocket. If you add AR to the operating cash flow right now you are above your so called buy trigger value.

      This type of a business has relatively low costs so their operating profit margins will continue to be awesome.

      This company has NO debt, 123m in cash, they are buying $50m in stock, has awesome gross profit margins, Chinese economy coming back, a secured backlog for 2009, and other positive developments.

      Never look in the rearview mirror when investing and use metrics that makes sense.

    • It's absolutely certain that VISN doesn't have any market "power" that would let it sustain 60% gross profit margins. They are in a competitive market and will have to reduce margins over time. Maybe they can achieve some kind of network effect based on volume and therefore achieve lower costs and bid higher for contracts, but it's not going to be 60% long term.

      Assume operating cash flows grow next year by 25%. Divide the operating cash flow times 125% and divide by enterprise value and that's still only about 12.5%. To get excited about the company's valuation, I want that number to be 25% to 35%.

      None of this is to say the company is bad. I just don't like the stock at its current price. I would gladly consider it at 1/2 the current share price or less.

    • I think you are objectively looking back into the rear view mirror. Their AR ended 2008 at 24.7m. That is because of the 6 ad agencies they bought in 2008. I expect those ad agencies to aggressively go after those ARs since their is an incentive to collect under 180 days. So in 2009 the operating cash flow will exceed expectations, maybe even exceed net income.

      Think about it -- a business that has 100m in revenues and makes an operating profit of 60m, 60% gross profit margins. That is tremendous. Not many businesses has this kind of power. I think you are quibbling a little too much about ARs -- they must collect under 180 days otherwise no earn out payments, a win-win, which will satisfy your operating cash flow quibble.

      The more and more I read about VISN, I'm really impressed with VisionChina operating performance and mgt's shrwedness.


      Page F-5
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    • Okay, but your point is subjective and mine is objective. When you take the operating cash flow and you divide it by the company's enterprise value, you get about 10%. That means in effect for every dollar you invest, the company is able to generate about 10 cents of operating cash flows.

      A 10% earnings yield is not very high, even for a safe Fortune 500 blue chip. A small cap Chinese company needs to be yielding at least 20% (preferably 25%+) to make the risk worth taking.

      So they may have all the opportunity in the world, but the current share price makes that opportunity look like it is priced in.

    • I don't think P/E is the right metric to use on this company. Their accounts receivable is significantly increasing, so the operating cash flows are much more revealing about the financial performance. If you look at the operating cash flow divided by the enterprise value (backing out the net cash position of the company), you are only getting about a 10% operating cash flow yield against enterprise value. That's nothing remarkable at all.

      • 1 Reply to peristentone
      • On the contrary my friend -- they have done a great job collecting ARs. Remember, they acquired 6 agencies in 2008 so it is normal that AR has increased relative to their increase of revenues due to the new businesses. Right? There is an incentive to collect ARs as the acquired companies will not get their earn-out payments. Again, a win-win.

        And AR has actually declined a little sequentially from 4q08 to 1q09. So when you say AR has increased significantly you are NOT clearly understanding or painting the picture properly, IMHO.

    • I bought in early today and have been very pleased so far.

 
VISN
8.76-0.29(-3.20%)Apr 29 3:48 PMEDT