Valuetronics is one of the stock in my Stock Incubator portfolio since June 2017. I did not pay a single cent to own the stock and just early this month I strategically increased the holding by 20% at $0 cost. The fierce sold down did not affect me as I have nothing to lose from this investment. Instead probably like most acted out of fear starting to sell, I do see opportunity in increasing my holding during this incident after giving a thorough analysis of its fundamental in relating to the reason for the sell down.
Above is the Revenue Trend presented by Valuetronics in its last quarter earning in February 2018 (9MFY2018). From FY16 onward Valuetronics revenue has less dependent on its Consumer Electronics (CE) business as its other business section the Industrial & Commercial Electronics (ICE) started to grow or even out grown that of CE. The weak sale reported by Dutch MNC is product from its CE section. Report from analysts said the Dutch MNC client lighting business contributes 20% to 25% of its overall revenue. As for whether that is true or not unfortunately, Valuetronics does not provide breakdown of revenue channel in its earning to verify. Should we take it to be true and take it at 25% then the 9MFY18 revenue from CE will be 933.3M (from the above figure), still much higher than 9MFY17 CE revenue but a notch lesser than that of FY17 CE revenue of 987.1M. Further more, I have not add in the 4QFY18 revenue that is not relating to lighting product. In addition, the 25% revenue I minus off is assume the whole of lighting product contribute $0, is that possible ? The Dutch MNC still Valuetronics client and it is experiencing slow sales only in US and it is totally different from the Dutch MNC ceases to be Valuetronics client or globally slow sales in the lighting product. While the FY18 earning is due to released next month, no matter how I see it, it will just blow past FY17 revenue and it might even come close or even break the record high revenue of 2433.3M in FY14.
The current trade war fear between US and China which put pressure on global technology stocks probably also add on the negative sentiment but from what I have analyzed this is short-term issue. Looking at the indices chart from US markets (Dow Jones, S&P500 and Nasdaq 100) and that of China SSE and if stock market is a forward indicator of the economy, the picture I'm getting is the current trade war unfortunately put US on a better advantage. China Government should know China is taking hits from that and even with its retaliation it seems China still in a disadvantage. Politically, I do not expect China to admit openly they have lost out on the tariff war and the only way to prevent the situation getting worse is to engage in trade talk with US. Moreover, using Nasdaq 100 chart as a guide, near-term might still have some weakness before the uptrend resumes.
Above is some key financial ratios presented by Valuetronics in its 9MFY18 earning. One thing I want to highlight is the company is in 0 debt and with a cash holding that as of 9MFY18 equivalent to $0.26/share. FY2017 cash holding was $0.32/share. After adding in 4QFY2018, the cash holding could be inched up a bit to maybe $0.27 or $0.28/share given that 6MFY2018 was $0.25/share. This is lower than FY2017 due to the 1:10 bonus issue in June 2017. Financially, Valuetronics is very sound.
I have yet to come across a company or corporation with 0 debt and a net cash position to go on doing badly unless its account is being cooked up but I do come across cases that these type of company or corporation doing far better than expected going forward. In fact, I have personally experienced that and that is the stock Nordic Group, another of my Stock Incubator portfolio stock. I invested in Nordic Group in 2014 at price of $0.1072 and after some strategically action the holding price dip to $0.1037. Then Nordic was having 0 debt and a net cash of about $3.4M with a market capitalization of about $71M and that translated to about $0.048/share. At the closing price of $0.54 (as of 27th April 2018), this investment is giving me an unrealized profit of 418.87% apart from a 41.61% return from dividend. Thus it is very hard to convince me that Valuetronics going forward due to the temporary slow in sales from its Dutch MNC client of the lighting product will perform badly.
From Technical Analysis perspective, I see a bear trap zone, that is stock price fall to that level to trap the short-seller. Unfortunately, I'm not going to reveal the chart for it or even reveal whether current price has dropped into that zone or not. This is mainly because I have the intention to increasing my holding during this incident either by finally putting in some capital or another strategically action to acquire more at $0 cost. As for whether I have already bought it or still waiting for the right time I will not reveal either as this is all part of the strategy I have learned from Sun Tzu Art of War (孙子兵法). I will only reveal after my objective has been achieved. So for the time being, short-sellers are my "best friend" :)
Stock market is always irrational and you just have to know the rationale behind that irrational then you can get an upper hand in investing.
