Friday, June 5, 2015

Back Right Where We Began: Civmec

On 20th March 2015, I bought into Civmec at a price of $0.40 for 10 lots. Yes, 10 lots isn't that much to all you rich folks, but like I always said, I like to imagine that my portfolio is in the millions and not in the thousands. I'd still want to manage it the same way I am doing today. I took up a position that was roughly 3% of my portfolio value.

My investing thesis was that this is a cheap company, based on an EV/EBITDA ratio of just 4.5. It also had a very clean and simple balance sheet, and I liked how easy it was to read through their financial statements. It had shaved off 50% of its stock price and the selling towards the end seemed very emotional to me. I decided to go in.

A month went by and wow, Civmec had exploded up 30% in that short time span! My brain was malfunctioning at this point. Do I continue to hold, or do I realize some pretty tasting gains? Rationality took over my greed and I cashed out. Selling is never an easy decision because, what if it goes up?

And go up it did.

After I sold, 5 trading days later we hit the recent high of $0.58, which would have translated into very handsome gains of 45% on my cost of $0.40. However, since then, their share price has been dropping and hey, it kind of looks like we are right back where we started!

I guess now the question is, would I enter back into Civmec at this price like I did before?

I think... that I will wait and see first, but for now, no.

Their earnings has dropped since I bought them, so their valuation is definitely more expensive, yet on the other hand they did get awarded new contracts in Australia. However, how much will this contribute to earnings? I'm not an expert, so I don't know and I haven't had the time to try and make guesses yet.

But seeing how it has technically made a lower high, earnings are weakening (valuations using earnings are more rich), P/B is at a premium and Australia seems to want their currency to sink even more, making a case FOR Civmec is particularly hard for me.

If the Australian economy can substantially pick up, I could see how that rising tide might lift up the Civmec boat. Improving business fundamentals and a stronger AUD would juice up returns from Australian companies.

But for now, I'm just sitting down waiting for things to happen. Inaction is an investing decision too.

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