Thursday, February 26, 2015

Stock Up 50% in 4 Months. Sell?

The counter that I am talking about is Valuetronics, which I bought in October when there was a spike down in the stock price.

Back then, I was scratching my head at the plunge in share price. The share price was below net asset value and their balance sheet is something to be envious about. Almost all their debt is payables (good debt imo) and they have a very high cash balance. They have a strong dividend payout history and offer quite high yields as well. The stock cratered 50% in just 3 months. Wise men say only fools rush in, and I was a sucker to this stock crash.

With recent sells of CDW and Hock Lian Seng netting in returns of 46% and 41% respectively, looking at my 50% unrealized capital gains on Valuetronics is making me think if I should walk away with the profits in hand.

Before I make such a decision, I have to go back and look under the hood to compare the stock at the time when I bought it, and today if I want to sell it.

What I found is that fundamentally, nothing much has changed. Balance sheet gained assets which pushed down the debt ratio, but also the cash ratio. Payables only form 82% of debt now when it used to be 96% of debt. Kinda of feel like the plus and minus balances off.

Looking at P/NAV, the stock is no longer trading at high levels of safety since it is now over NAV by 22%. It was trading 12% under NAV when I bought it. Seems to sound like I might want to walk away with my profits now, right?

However, (if my math is right) EV/EBITDA has only inched up a tiny 8% even though share price is up 50%. I'm not trying to be greedy, but I believe that such a company that is currently valued at 6 EV/EBITDA ought to have higher valuation multiples.

This really is a case of fear of missing out. I do believe that this stock has a very high potential considering the decent price that I entered. I think it is unlikely that stock prices fall too deep beyond my entry point. I am now risking my unrealized profits for the possibility of even higher profits, which I think is quite likely and worth the risk that I'm taking.


Even if nothing fruitful happens in its stock price, sitting on this stock pays out 6-12% in dividend yield historically. It's hard to complain given the current position I'm in!

The question is not if this stock will be profitable, the question is how profitable will it be?

2 comments:

  1. You did a good evaluation of the stock itself.

    I think you may already have the answer yourself :)

    ReplyDelete
    Replies
    1. Thanks B! Time will tell if my hunch is right. I still struggle with sell decisions!

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