Even without a great earnings report in the short term, SORL has great prospects. It operates in a very predictable business (automotive parts), in a Chinese macro environment that will grow around 6-7% (conservatively) for years to come. Decent R&D budget for new products and you're picking up a slice of this for less than half of its book value. Very little debt, so no bankruptcy threat. Pitroski score is 8 out of 9 (very strong), Altman z score = 2.02 (also very good). Hard to find that combination of performance statistics.
On the risk side, it's a Chinese RTO and things could go wrong, but the idea that ALL Chinese RTO's are scams doesn't make sense. Some are, but most are not in my opinion. SORL's a decent size at 65M. They have tangible inventory, it's car/truck parts - a very real business. If there were issues, they likely would've surfaced by now.
SORL is a compelling business at these prices. Over time as the RTOs washout and the Chinese economy chugs along at 7% - SORL will report good earnings and investors will buy - sending the stock surging ahead to kind of shake off it's illogical valuation. Then it will just continue to grow along with Chinese economic engine which is decent in its own regard.
I'm buying and holding for a few years. Be interesting to see what happens..
Good luck to all!
The company has impressive properties and the management seems to be talented. However, I can't find anything specific on when these mines will start producing. So, it's great that they keep communicating their potential, but as a shareholder I need to know when these will startup...Seems like SSRI has mines that are just talked about. Does anyone have any info on when these 2 will be brought online? Perhaps there are problems with surrounding communities or the permitting process? Thanks!
So let me get this straight: A Chinese company importing luxury cars, growing revenues at over 100%, book value at less than 25%. No long term debt. Stock tripled from November. If I take ALL of their liabilities and subtract them from only their current assets, I'm left with $56 million. Because they have no long term debt, the common stock is free and clear.
It's rare to get business opportunities like this. To me, the worst case is that management decides to take it private or relist on an Asian exchange. If they do this, they will borrow a few hundred million, and buy the shareholders out. You'll at least double your money from here because book value is so low. So you can't lose. (Unless of course, you let these shorts scare you into selling at these levels).
To all the shorts, On November 6th, 2012 one week before earnings announcement, the stock shot up before retreating slightly over the next few days. Then, when they announced, it went nuclear and was NASDAQs biggest gainer for the day. four months later....the same thing seems to be happening. The stock shot up last week and was Nasdaq's biggest gainer - we're waiting for the announcement. Will it go nuclear again? We'll see soon enough.
And remember: when you roll up in a Benz, doesn't matter which country you're in. Everyone understands and wants a hot car. Even in China...
I recently asked several companies I was interested in for their printed annual report. I asked them all at the same time and I wondered which company would be the first to send one. To my surprise, Parlux called me the next day to confirm that the 2009 annual report would be sent (not 2010 which wasn't out yet) and it arrived a couple of days letter.....along with Fred E. Purches business card paper clipped to it.
I was impressed.
Been looking at Manulife recently and buying, but it does have risks. The main one that is causing downward pressure is Manulife's exposure to segrated funds in the equity markets. MFC in some instances has guaranteed returns to unit holders of certain equity products. If the market goes down, MFC and all its equity holdings take a hit as they honor their guarantees.
Another risk is the market's reaction to their recent raising of capital. MFC cut their dividend and diluted their shares with a surprise equity offering which frustrated a lot of shareholders. Mutual fund managers have avoided MFC because they are unsure if this was because they simply wanted to position themselves conservatively with capital ratios that exceed competitors moving forward (as MFC management would have us believe) - or - they may actually need this capital as they reveal losses and write offs in the near future. Many Canadian portfolio managers avoid this stock because of the trend and the risks associated with potential more bad news to come.
Manulife has some pluses however, which is why I bought some shares. As I see it, if the market does not double dip, then MFC is not in any trouble and their raising of capital, if not used to cover losses, positions them very well moving forward. They have a great brand and product in "Manulife One" in Canada (my employer uses Manulife group plan for insurance) and the John Hancock brand seems to do well in the States but I know less about it (Although I particularly like the sign in centrefield at Fenway Park). They have exciting growth prospects in Asia which cannot be discounted or overlooked. Finally, their valuation is spectacular if you are buying value at the moment. P/E ratio is under 7, Dividend yield is back up to around 3.5% with a payout ratio of a very reasonable 30%. Canadian banks are no longer a slam dunk, so MFCs price contrasts well when stacked up against the well known Canadian financial sector bank plays (Royal, TD, Scotia, BMO and CIBC). This past week, a well known value Canadian portfolio manager recommended MFC stock as a top pick.
As the double dip threat subsides, so does the risk that MFC reveals large write offs associated with their guarantees on segrated funds. More value portfolio managers will start with buy recomendations (which is happening now), followed by mainstream and trend style managers. On a multi year strategy, buying over the next few months should pay off in my opinion. This next earnings call on August 5th will be the worst of the storm with blue skies to follow.
Held Nokia for 2 years on the long term strategy that they would be able to dominate the lower end phone market, particularly in emerging markets and they would have a decent shot at the smartphone market. In my opinion, they have already lost the smartphone battle. Also, because they have no smartphone brand, they will lose a lot of marketshare in their entry level phones as well.
I question their medium and long terms sales in China as well. The Chinese consumer will gravitate to the HTC brand of phones just as Canadians gravitate to the Blackberry. That leaves Europe to make gains, but that economic zone is a disaster at the moment.
Nokia's strategy of phone marketing has been to blanket the marketplace with dozens and dozens of phones for every need but again, this shows a lack of a cohesive marketing strategy. It's easy for competitors to pick off each phone with a better product. I actually updated my phone 3 weeks ago and decided to buy a Nokia, but honestly, I was left wondering what the heck they are doing...
Their business network business provides some short term relief, but would not be surprised to see this flounder as well. Extremely competitive space with Nortel Networks announcing bankruptcy and the likes of Cysco Systems to contend with.
The announcement of a new search for CEO was the clincher for me. This precedes tomorrows earnings announcements and signals that the results will be bad. Perhaps so bad that they have to show the market they are doing everything they can to rectify the situation once they reveal the lack of results. Yikes...
Good luck to everyone, but I'm locking in a loss and reshuffling my portfolio!
Drudow - you're such a killjoy! I have a small position so I'm not worried, but if I invest any further, I better do some more homework. (you've got me all concerned now...)
I see inventories and receivables make up $82M, based on Dec. '09 balance sheet. That's where the lion's share of the margin of safety lies...What are your thoughts on both these line items? Are they reliable?
Do you have any marketshare information for the industry as a whole (Parl vs. coty, avon, etc...)?
Also, do you know why property/plant/equiptment went from 3.3M to 6.4M? Did they expand operations?
Catch you later!
Average: $0.32 per share
Parlux price is completely ridiculous right now. It is trading at 40% of its net asset value. It's rare to find an easy-to-figure-out business, a decent brand with such a low price on its shares. With a margin of safety like that and no debt, the company can easily return to earnings and restore a more rational price. I love the fact the old founder is returning as CEO. Founders love their businesses. Sure he's older but look at his experience. Before long, he'll stabailize and add quality celebs to the stable. Plus, it's an easy business to figure out. Perfume is not complicated and it will be around for another 4000 years or so. Accumulate some shares now and you'll be amazed that you got them at the price you did!
I think if you look at volume since they held their conference call it's steadily increasing. And the price is generally moving upward. So increased volume, increased price. Its valuation was (and still is) so low, it can't hang around at these prices for long.
Drudow, we meet again on yet another deep value stock message board! Always a pleasure. As with my ACAT purchase, which has worked out well, I'm drawn to a good brand at below net asset value. So again, I'm going to buy a little.
A former roomate of mine is a golf pro in Montreal and I asked him for some scuttlebut on the company and its products. He said they're good. His only concern was that their products are regarded as middle-of-the-road so marketshare may be difficult to steal from the premiere brands. But.....Tiger Woods I think may have an effect. Nike, TaylorMade sales will slide and overall Golf viewership is way down. But this is perfect for a small, middle-of-the-road, moderately priced brand to make a move up. Also, I've heard that Adams is going after the female golf market with success.
All very interesting....
Drudow, what other deep value stocks are you looking at now?
I'm looking at MIR, TDW, PCC, BHS.
2009: big loss, with one-time lawsuit charge
Average, without 2009: $0.44 per share.
I'm going to buy a little. I think they'll turn it around and return to '06 form...
Nokia's strong position in emerging markets (i.e. China 69% marketshare) means a steady stream of profits made from the consumer of Nokia's lower end cell phones.
As mainland China's economy grows and welcomes their population to its cities for better paying jobs, they'll buy cellphones to communicate with their families, but they can't afford a data plan and they don't use the web so smartphones are out for them. With a population of over a billion people, this number is huge...
Granted, Nokia is not performing well against the iPhone & Blackberry but they pay a 4% dividend. So, I'm happy to be paid well over the annual 10-year U.S. bond rate while I wait for Nokia's lower end phones to juice their numbers (and their stock price). Plus, if they ever get their act together in the smartphone space, lookout!!
I have a learning opportunity here:
So Omeros issues 6.8 million shares at $10 per share through an IPO. But todays market cap indicates only $22M...?
If they issued 6.8 million shares and the price today is $6.51, then the market cap should be approx. $44M.
Is it because not all of the shares offered sold? Their outstanding shares indicated is 2.95M, but the press release said they offered 6.8M (@ $10.00 per share)
How much did Omeros acutally raise through the IPO?
Are the shares still hitting the market at reduced prices, i.e. their number of shares outstanding will increase over the coming days?
Any clarifying informaton would be much appreciated!
Nice post! Really enjoying your insight.
Totally agree that the inventory analysis is vital to the determination as to whether ACAT is a good investment.
How robust is your assumption that the inventory will be cleared out by Q2? True, dealer network is getting healthier, but the dealer network is shrinking, so dealers that survived the downturn are "healthier" - but that doesn't help ACAT earnings growth. Sleds & ATVs that go unsold for too long will fall well under the presently listed cost/market inventory value, so for the true margin of safety are you discounting enough?
Acid-test ratio (which does not include inventory) is 0.625 which is, well, not good. But if they raise cash through a long term debt offering they would be able to overcome this obstacle with ease. This would juice their cash position on the balance sheet, the market will eventually pick up once the recession is over and they will clear out their inventory, their brand recognition will take hold and earnings will grow along with their stock price (and my investment!). It will take a little while though. Do you know of any way to assess the accuracy of their inventory figures?
Well, it's no sure thing. there are risks. But somehow, I'm more confortable with this than many other stocks.
Bad management - maybe. Old inventory sitting at inflated prices - Definitely lots of it, but not sure about "inflated" prices. Their line of credit was extended by Wells Fargo as per their news release and I cannot see how they will not secure longer term debt based on the fact they have no debt at the moment. (They're not going to file for chapter 11, that I'm 100% confident about). Dealer network is shrinking and projections are incorrect because of macro-economic conditions.
They could sellout and exit the industry at the moment. I would not be surprised if they get acquired because their stock is so cheap. Look for Polaris or Honda to make a move if that happens. If they do, shareholders will likely get a nice instant premium on the current stock price because it's so depressed.
Legit concern, no question. Cashflow is always a concern for below-net-asset value stocks. But, ACAT can easily borrow to solve the cash problem and interest rates are very low right now.
From their most recent earnings transcript:
Brandon Taylor – Raymond James: "A quick question about your credit facility, at the current size I think it was $30 million at least to the end of May. Is that enough to get you through this season of working capital build?"
Timothy Delmore (CFO) We will expect to have a higher facility as obviously we go into our summer, our heavy summer production months so our facility will increase.
Brandon Taylor – Raymond James: Do you anticipate that on the new agreement, the new multi-year agreement or do you expect you 30 day extension to kind of be upsized?
Timothy Delmore: We expect the extension to be upsized and also the multi-year agreement to be increased and adequate for a number of years.
Brandon Taylor – Raymond James:Did you have any short term debt at all at the quarter end?
Christopher Twomey (CEO): No we did not.