Thursday, May 21, 2015

M1: This Time It Is Different?

I have to say, I really like the stock screener that Richard from Invest Openly has shared.

It isn't perfect for sure, I do see some inaccuracies, but most stock screeners have that issue of never always having the right information. However, they have enough basic ones for me, and I think that it is good for screening through "candidates" for deeper dives.

One of the candidates that I am currently looking at is M1.

In the past 5 years, M1 has pretty much been a rocket.

From being priced at $2.07 five years ago, it is trading at $3.33 today. In fact, it was trading as high as $3.99 just a few months ago! Either way, you are looking at annualized capital returns of 10% or 14%, depending which final number you are using.

To add icing to the cake, you would have collected $0.7579 worth of dividends per share over the past 5 years. That is 36.6% yield on cost, or 7% a year.

That jacks up total returns of M1 to between 17-21% annualized over the past 5 years.

Can this rocket continue shooting out returns like that, or is this time different?

M1 has been a trend follower's wet dream. In late 2005 until early 2007, it's MAs were flagging issues. The stock pretty much went no where those 2 years, before shaving off 40% due to the GFC.

Since then, just following the simple MAs would have kept you in and invested the entire time over the past 5 years. There still isn't a "sell" signal yet based on a crossover of the MAs, but... the price performance recently does look a bit suspicious, doesn't it?

Was $3.99 earlier this year the peak? Is another 40% decline in its future?

- Rates are set to rise (or so they say), making it a comparably less favourable option for income investing.
- OMGTel and SMRT are going to be coming in as a 4th telco player. No need for rocket science, all 3 telcos market share will drop.
- M1 has the weakest grip on its customers as opposed to the other telcos (or so they say), making the 4th telco affect them most negatively.

Have we as Singaporeans reached peaked connectivitiy? Everyone with a smartphone and a tablet who want to be connected, already are. Of course their need for connectivity is a luxury, though I don't think people are going to cut away one of the most prominent and tangible benefits they enjoy on a day to day basis if they need to tighten their belts. I don't think most people can or would cut back on their data plans. So in a sense, I don't think that telcos are that affected by market cycles.

Of course, fundamentals of a company can have absolutely nothing to do with share price. Market cycles can make all investors feel down and sour about the general market, depressing the multiples across the board, even though fundamentals has not changed.

I have used all 3 telcos in my life (PSST. ALL THE SAME LAH) and I currently use M1 now. I actually queued for M1 at $3.50 a while ago, but no luck (or on hindsight, good luck?). After looking into this stock's big picture, I have to say that I am pretty glad that I didn't buy into it at $3.50.

Given it's stellar performance in recent years, I really wonder just how much longer this can go.

It's weird, but I am skeptical of things that have been doing recently well, and I am always curious about things that have been doing recently bad.

I am watching this, and the other telcos, patiently from the sidelines. Mr Market, flush out all the weak hands, please?


Observe the house rules.