Tuesday, June 9, 2015

Wherefore Art Thou, Romeo? (Silverlake Axis)


I was never good at literature. I tried reading Jane Austen once to try and be all literate and learned, but it was the worst book that I never read in my life. I couldn't finish the book even if there was a $100 reward at the last page. That's a $100 I don't mind forfeiting so that I can live my life without that horrible experience.

Don't get me wrong, I love reading. 1984 is pretty much my favourite book ever. I think as a reader, I like the story plot a lot better than flowery writing. That's just my personal preference though.

Anyway, somewhat related to things that I am just horrible at is growth investing.

I personally rather not buy promises that may or may not be kept. I like to take things at face value and imagine armageddon, rather than fairies and unicorns. What if this "growth" never materializes? I guess that is probably the biggest risk I see in growth investing. I'm just not hard-wired for it, but if you are, by all means go ahead. You have 1 less competitor out there.

Now, recently I've been watching Silverlake Axis accelerate downwards to the floor. At this rate they are heading to zero by October. That's not really very likely, but hey, I'm just stating the facts here. It dropped 50c in 2 months. In 4 more months at this pace, there ain't going to be anything left. Over-reaction? Let's see.


Honestly, before today I never even knew what Silverlake Axis did. All I saw was a graph going up and up and a ridiculously high PE. My mind just goes numb when I hear about companies like that. But with the massive drop in price over the past 2 months, I guess it has sufficiently piqued my interest in it.

EotS has a very good post on the business of the company itself, while B has a nice supplement addressing the issues raised by the blogger. I like reading other people's take on something. When you compare it to your own view, you can challenge the best of your defences with the best of their attacks, and vice versa. It makes your final conclusion a lot stronger.

I do agree that their moat seems legit and their balance sheet is something to be envious about. They also have really disgusting margins. But alas, their valuations is a bit off-putting for someone like me.

I see Silverlake Axis as a company that is really similar to Sarine Tech. Sarine tech is a really fast growing company with disgusting margins as well. Earnings has doubled in the past 5 years! But is it a value company? Well EV/EBITDA is 21, so not really to me.

In my simple pleb mind, value investing is buying something cheaper than what it is worth today, whereas growth investing is buying something with the expectation that it will eventually be worth more in the future.

I would not consider Silverlake Axis a target for a value investor. Is it cheaper than it was? Yes. Is it cheap, objectively? I would say no.

However, I do see how things could turn out really well for Silverlake Axis. Perhaps the Malaysian Ringgit starts to appreciate (we are at a 9 year high compared to them). Perhaps all their future plans and growth all fall into place and even surprise to the upside. They have started buying back shares too, so would that give the stock more bids and a price floor?

As a business, Silverlake Axis looks great to me. At these valuations, I wouldn't say that I'm not interested, but I would say that it would not be a comfortable buy for me. I'm still on the fence for this one.

However, I am trying to slowly diversify my strategy and also not only look for bargain bin stocks, but also into more quality stocks. And as with most good things in life, you've got to pay for it. I'm quite on the fence regarding this, so maybe I'll shake my lucky 8 ball later to find out if I should take up a position. Not many fundamentally pretty counters like this drop 33% unless they were really crazily valued in the first place.

So, just like Romeo and Juliet, this is how I feel with quite a lot of companies. They look so beautiful and great to me, but there is just something holding me back, keeping us from being together. It just seems like it's a forbidden relationship that was just never meant to be.

Does Romeo get Juliet in the end?

4 comments:

  1. " I tried reading Jane Austen once to try and be all literate and learned, but it was the worst book that I never read in my life" Umm you know that Jane Austen is the name of an author, not a book, right? You must really hate reading.

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    1. Yeah, that's right, she's the author of Poop and Poppycock.

      I love reading, I'm particularly good at Where's Waldo.

      We just have a difference in genre preference, that's all!

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  2. Hello GMGH
    are you looking at this stock at current low price?

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    1. Hi trademarksg,

      Thanks for bringing up this old post. I haven't looked at Silverlake Axis for a long while, until you made this post. With it at 50c today, valuation has come down a lot a lot, which I personally believe is a good thing for a long term investor to want to see.

      I have yet to re-evaluate the company, it's businesses and how it is doing, but I would say that it doesn't seem like a bad point to put money in, if you believe in the legitimacy of the company, which was the main point that was called into question in the past. Based on valuations by earnings (PE, EBITDA/EV), it seems back down to earth now. Is it value? Nope, it is rather normal, but that's a lot better than insane, which it previous was. But it does seem to be a good stock to keep an eye on now! Thanks!

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