Wednesday, June 1, 2016

Bye Food Empire

I bought Food Empire in May 2015. About 13 months ago.

Back then, I bought Food Empire at $0.27. It was trading at 22% below NAV. EPS was negative, but based on its previous year's earnings, it was about 11. For a consumer staples company, I thought it wasn't too bad. The main risk is the geographic markets that it operates in due to stability and FX, which I did highlight before. It was unloved and just dropping and dropping. It looked beautiful to me.

From it's negative earnings position, it has since turned around and started marking a profit again in it's most recent financial statement. PE is back to positive and it is trading at a decent multiple of 9. However, P/B has recovered and it's back to 1.

At one point of time while I was holding this stock, I was underwater about 25%. Ever since it's recent financial statements came out, the stock has been surging. It looked like it had peaked out yesterday, just shy of $0.40. I actually find the move up very surprising. I would have imagined that a move higher in the stock price would coincide with rates moving back to the pre-2014 level of under 30. The SGD/RUB is still almost 50. The $0.40 zone also looks like an area of classical resistance. Today, I sold off my stake at $0.37.

Over the past 13 months, including transaction costs, my profit is a pretty respectable 36.4%. Sure, in absolute amount it is small (~$50), but I quite like how I can take risky, small investments. $50 here and there goes can go a long way especially when all the "big boy" stocks are performing so badly. I really do think that there are lots of opportunities in the SGX which are mainly due to size. Many of the small stocks are overlooked.

I am actually a bit sad because once SCB implements it's minimum trading commission, I would likely be too timid to enter a trade like this. The round trip cost of this transaction was a minuscule 0.56%. With the $10 minimum commission, even with a $500 commitment, the round trip costs of buying and later selling would shave off my returns by 4%, which implicitly forces me to only take on riskier investments and skip the smaller mispricings. Unless of course, I decide to commit with larger positions, which I am not ready to do so yet.

To all the bigger fish out there, I'm just a small little fish fretting over simple dollars which is probably chump change. But then again, does it mean that people with bigger portfolios and bigger positions end up with better returns? Hmmm

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