Thursday, April 16, 2015

40% Off Enough for Sarine Tech?


Since it's peak of $3.25 on 1st October 2014, Sarine Tech has shaved off a whooping 40% to be at $1.975 where it closed today.

Is this 40% discount enough to entice me to be an investor?

I've stumbled upon Sarine before and it is on my watchlist. Personally, I think diamonds as a decorative jewellery are great... for jewellery shops. My innate bias that will leave me a bachelor forever aside, their business is pretty niche and interesting, with not too many other competitors, I would imagine.

As with almost all the companies I invest in, I claim to know no special knowledge in whatever they do. In fact, I gloss over them most of the time. Their numbers are more important to me, and I must say that Sarine has very sexy margins for their business. In fact, it's bordering disgusting. 70% gross, 30% net? Good on them!

Nice balance sheet, zero debt. What's there to complain about?

Valuations though, that is getting out of hand. Even with a 40% decline in share price, guess what's the EV/EBITDA? 21. No point looking at P/B for a company like this.

T from apenquotes wrote his perspective about Sarine, which I thought was very detailed and well done. From a growth investor's point of view, Sarine was a buy for him and he added it to his portfolio. I think it's always good to look at the opposing point of view to help with your own argument.

However, to me, Sarine is just plainly and simply way overvalued (yes, still) even after considering its fantastic earnings growth in the past. Sure, earnings has doubled over the past 5 years. If history repeats itself, that would bring EV/EBITDA to 10 in 5 years time. I still think that's expensive.

Herein lies my problem why I can never be a growth investor. I am always skeptical about the growth of the company and its future. My mental hardwiring has been better built and set up for value investing. I'm not saying that one way is better than another, but that is just my style and preference.

I'm probably going to remove Sarine from my watchlist. Unless valuation drops another 50%, which I doubt it would, I ain't going to be interested. I'll leave this up to the quality and growth boys to play with this stock.

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