A short case study - Powermatic Data Systems Ltd
I first noticed the stock yesterday when it was trending on investing note, at price $1.62. At that point in time, it was already up about 13% from its $1.44 opening.
Taking a quick look at the figures,
Market cap = $56.5 mil
Cash on hand = $26.5 mil
Long term liability = $0
Enterprise value = $30mil
Investment property = $30mil
Investment & bonds = $8 mil
At this point, I'm getting interested in the company. I can take over the company and instead of paying a single cent, I can get around $8 mil back ($30 - $30 - $8 = -$8mil). And this figure may be undervalued if the investment is recorded at cost.
Full analysis shows performance of company is relatively stable, giving me confidence to estimate owner's earnings at around $4.1mil. Yield on EV is at 13.66%.
Without counting in further upside written in detail in CIMB report, I am already very interested in the company.
A quick scan on potential warning's signal doesn't yield anything that may be a concern. Owner owns a huge portion of shares, no insider trades, no large share issues.
Went in yesterday at $1.63.
Sold today at $2.49 (51% return)
At that price, EV is $60mil. Not only do you not get benefit from being under book value, your yield drops to 6.83%. With a return on equity at a lackluster 8%, that is not a good enough price for me.
1. Avoid crowd think
Don't make an investment because its the next "in" thing, or it has been going up. Make an investment because it makes sense to you.
2. Avoid anchoring.
Just because a price have gone up doesn't make something expensive. How cheap or expensive something is depends on where value is in relation to price.
3. Avoid what you can't value.
Someone says creative has infinite upside. In my opinion, I can only see downside. Take care of your downside, and your upside will take care of itself. Buy things that allow you to win big, and when you lose, you can't lose much.
4. Understand a company before you make any investment.
Will it go up further? Maybe, but it would be out of my investment scope.
By the way, this stock passes @TUBInvesting scorecard for value stock as well.