This is really off topic but since we are touching the idea I thought I should share. But first of all, my apology to anyone - female board members in particular - who may find the information less than tasteful. It's a men kind of thing; what can I say?
Guys I started taking a herbal tonic recently with He Shou Wu (in USA many people call it Fo-Ti) as the main ingredient. This herb is reknowned for restoring health to hair, lowering cholesterol, and promoting general health. The first two benefits were what I was seeking. Well, a week into my regiment, GF started commenting that my, er, sensual needs, had suddenly spiked. In another two weeks she repeated the same observation and said maybe it's the He Shou Wu I was taking everyday. I laughed and dismissed the notion, until she Googled the herb and found the citations that linked He Shou Wu to s*xual health. I still dismissed the information as just snake oil claims. Fast forward and it's been a little over a month now; the effect has not diminished. I am not ready to ascribe the effect completely to the herb (hey maybe it's just my prowess lol!) but it is difficult to dismiss the cause and effect suggestion either. So, guys and dolls (yes it is supposed to work on female as well, especially when mixed with Angelica Root), you should get some... I mean, get some He Shou Wu.
Free cash flow is not at its best
a. when evaluating fast growing small companies
b. during volatile economic times when even strong companies post lumpy cash flows
Case A. Small companies typically have to plow all their earnings into supporting the future growth. Often earnings are not enough and the company needs to make secondary stock offering or go and beg bank loans. YONG took the stock issuance way.
I like Morningstar because they do provide you 10 years worth of financial history, if available.
Here is an example of a small US company, IPGP, which is the acknowledged leader on its field and growing nicely. FCF does not look so nice before 2009
Case B. During turbulent times even strong companies have weird cash flows. Take a look at Potash in fertilizer business: FCF says it’s a crappy company. Is it?
I do appreciate FCF analysis over any other method, except maybe valuation based on abnormal earnings (Penman). So what do I look? The TREND! THE TREND!!!
And based on Morningstar’s numbers the trend for YONG is pretty good.
Good reading on the topic:
Aswath Damodaran: Tools and techniques for Determining the Value of Any Asset
Stephen H. Penman: Financial Statement Analysis and Security Valuation
I apologize the sane moment. It stops here.
If you implement all the various valuation methods on these two books on Excel spreadsheets I guarantee you will go nuts. I did. And then there is CFROI analysis to implement… Muahhaaahaaaahhhh!!!!!
K, YOU'RE BACK!!!!!!!
I was away for the weekend. I returned home yesterday a few minutes before the market closed. Happy I didn't see another day of agony. Anyway, I was too lazy to catch up on all the posts, but did read something about your mother being ill (?).... Is everything okay now? I hope so.
Anyway, happy to see you've returned. You were sorely missed, my friend.
Forgot why I ended hating Morningstar. You can't directly link to their financial statement pages.( There are programming ways around it) If you want to see my examples go to
get a quote for IPGP and select financials on quote page. Then cash flow. There you can do also the POT and YONG show.
I forgot to mention something else. Several regulars on this board, including myself, maintain our own financial models of YONG, from revenue, expense, margin, and income, to share count, earnings per share, price per share, etc. In our models we have already factored in dilutions. For example, in my model I have built in an annual dilution factor of 10%. And in spite of that provision the numbers still look great.
By the way CEO Wu did an interview with a newspaper in mid-May and the reporter pointedly asked about this same topic - that YONG will be needing ever more cash to finance its continual expansion. IMHO, Wu did not give a very good answer. He basically said that the need for capital (read: cash) remains the greatest bottleneck to the development of the enterprise, but did not say how he planned to resolve that without resorting to selling more shares. That makes me feel the dilution factor in my model is well-justified. The good news are that 1) Sam did say during the CC that they will finance operation from bank loans and further equity financing will only be their last resort; 2) With about $50M on hand they will not be needing cash for the remainder of the year; 3) Wu also talked about the seasonality in the Northern provinces and the year-round fertilizer consumption in the southern provinces. As they expand further into the southern provinces, the lopsided seasonality will even out such that their A/R will no longer bulk up based on seasons, making cash flow management much easier.
Here's the link to the interview. Sorry but it's in Chinese. Maybe Doctor Pepper can translate it since he's the only one who knows Chinese and understands the Chinese farmers lol!
do you trust management?
have you done any primary due diligence on this company like go to china, see the products and talk to customers?
these chinese companies can be death traps with numerous pitfalls. I've seen too many cases of fraud and bad accounting.
Yes I agree that the weak free cash flow is a cause for concern. I will further argue that this is the key factor in YONG's current low price. Why? YONG had to finance its huge growth and production expansion plan but could not generate the cash to pay for the plan. Hence the major dilutions event last year, which has put a significant drag on EPS growth even when sales are going through the roof.
However, I disagree with your prognosis that it "means YONG goes DOWN DOWN DOWN". If you hang around this board long enough you will notice that we generate a lot of analysis here and we have a morbid habit of taking the company's financials and other business fundamentals apart and making honest assessment of them. The free cash flow concern that you mentioned has been known and discussed often and in details for a long time on this board. We pretty much agree that this negative factor is already baked into the stock's price (otherwise YONG would be trading in the teens right now). It is not a new concern and, while it may prevent YONG from popping up to fair valuation, will not cause YONG to sink from the current level.
Agree. Believe we are in a "bottoming" process and a turn will be coming in the next 30 days, expecially if the putrid European countries can get their act together. They are a big drag on the markets everywhere. Too much freebee socialism... a path we are nearing in the US better avoid.