Company A - financially looks pretty impressive in 2013 with low debt and 20% ROE. The revenues and net profit then started declining at quite a high rate. Looks like they were going thru a very tough business cycle or it is a business in a sunset industry. Things seem to improve in 1H2018, so yet to see how they will perform for the full year. One thing that strikes me is the declining equity after 2014 when they were still making money. I guess could be the distributed dividends were more than the net earnings. With the current results, I guess the market will be tough on it's stock price, my guess from the low ROE, the stock is likely trading at or below book value. For someone to invest in A, I guess the bet is that the business is able to turn around and back on the growth track after few years of decline. Also the price has to be low enough for the assets to provide sufficient MOS, just in case, things don't turn around.
Company B - this is like a new start-up business with impressive 5-year growth especially in 2018 where the ROE hits 23%. The debt is also growing and also they are burning cash with neg FCF but I think this is expected given the explosive growth. This should be those asset-light business model and I think investors will likely drive up the stock price to crazy level. I won't be surprised if the PB is double-digit as the focus will be mainly on earnings power. Likely this will be overvalued and you can only pick up during some crisis time
So, the question is to invest in a declining but potential turn-around business like GE, OR a fast growing business with potential to be a Microsoft. If really have to choose, it will be B.
Value win Growth at the end. but if company is reveal things may have been different!
https://tubinvesting.blogspot.com/2019/03/...
Reply to @WK888 : interesting. i thought ppl will like netflix more
Company A - financially looks pretty impressive in 2013 with low debt and 20% ROE. The revenues and net profit then started declining at quite a high rate. Looks like they were going thru a very tough business cycle or it is a business in a sunset industry. Things seem to improve in 1H2018, so yet to see how they will perform for the full year. One thing that strikes me is the declining equity after 2014 when they were still making money. I guess could be the distributed dividends were more than the net earnings. With the current results, I guess the market will be tough on it's stock price, my guess from the low ROE, the stock is likely trading at or below book value. For someone to invest in A, I guess the bet is that the business is able to turn around and back on the growth track after few years of decline. Also the price has to be low enough for the assets to provide sufficient MOS, just in case, things don't turn around.
Company B - this is like a new start-up business with impressive 5-year growth especially in 2018 where the ROE hits 23%. The debt is also growing and also they are burning cash with neg FCF but I think this is expected given the explosive growth. This should be those asset-light business model and I think investors will likely drive up the stock price to crazy level. I won't be surprised if the PB is double-digit as the focus will be mainly on earnings power. Likely this will be overvalued and you can only pick up during some crisis time
So, the question is to invest in a declining but potential turn-around business like GE, OR a fast growing business with potential to be a Microsoft. If really have to choose, it will be B.
Reply to @TUBInvesting : Thanks for informing!