Never have I invested in a stock in the past was first looking at its Technical Analysis instead of its fundamental. Normally, the nature of the company's business, the quality of the products or services being offered, the quality of management, etc will be the first few factors that will attract me to do more research on the company and determine is it worth to invest in. However, for Creative Technology, this will be the first stock (and hopefully last) that I get attracted to initially is from the Technical Analysis of its price performance. I was analyzing for the price to move in Elliott Wave pattern after the company announced its new product, the Super X-Fi, which many said is the "holy grail" (refer here and here).
I wasn't impressed with the product initially as I'm not a fan of using headphone/earphone for listening. Ever since the release of 5.1 sounds system (now 7.1) I practically gave up on using headphone/earphone as sound is not natural and realistic when using those. In addition, I do not like the feel of sound being push into my ears, amplifying one side to make it louder than the other just to create that "realistic" effect. I do not own any headphone/earphone and also forgot when was the last time I used those. Even a cheap pair of speakers capable of doing 2.1 sound with positioning, using the walls to bounce off sound can produce more realistic and natural sound than a pair of expensive headphone/earphone. Well, the only good thing about headphone/earphone is you won't be disrupted what you are hearing from external noise.
As I get deep into the analysis looking the possibility of the reward in its share price, my instinct suddenly told me this could be a gem on its latest product. Hence, I started to research on what's the Super X-Fi is all about.
I'll skipped the research on the company history, the management, the present and past range of products its has offered as there are nothing for me not to know. I grew up in the era watching Sim Wong Hoo co-founded Creative Technology, witnessing its first failed product, the Cubic 99 or Cubic CT talking PC (in fact I was an owner of this product in the past) to the success of Sound Blaster card, a revolution to the PC industry then. After that success, many in my generation then were inspired to be the next Sim Wong Hoo. Having witness how Creative Technology rises from the ash, I also witnessed how its fall from its grace in its sound card business and finally the battle loss on its Zen player against Apple's iPod. After that, most probably forgotten about Creative Technology already. Well, I still using their speakers now for quality reason.
Artificial Intelligence, AI, is one of the key feature. It captures the user shape of ears and face to construct a profile using some algorithm for that individual to be stored in the Super X-Fi Amp. That means each individual will have different output from the Amp. We cannot deny the world going forward will be AI. Now, we already have AI like self-driving car, Robo Advisor, etc. Thus, the AI feature should provide certain degree of attractiveness for this Super X-Fi.
Algorithm, that should be patented and it will become a valuable asset to the company. Anybody who have worked in R&D before will know this is something that must be done of higher priority regardless the product is a success or failure.
These 2 points made me realized it is the technology instead of the product that I should looking into for reason to invest. This means the quantity sale of the Super X-Fi Amp or the Super X-Fi Air will not be a deciding factor for me. It is Creative's ability to sell this technology to be integrated into smartphone, tablet, earphone, headphone, game console, TV set, set-top box, PC, laptop, notebook or any electronics devices that produce sound that will define the success of Super X-Fi.
To convince further my decision or instinct, I purchased a Super X-Fi Amp and went to personalize and a demo session to experience myself what this technology is about. My first reaction when I put on the headphone (connected to the Amp) was the Amp is faulty, not working as the sound I heard was from the speakers in the demo room. I've accustomed myself for years on listening through speakers for the natural and realistic sound effect and despite not being an audiophile or a sound engineer, my past R&D experience did provide me some knowledge of what audio is about, what the Super X-Fi produces really shock me. Since I'm not doing a technical review, to summarize my experience of the Super X-Fi technology -- It makes me feel like I'm not using a headphone/earphone !
In short, my decision to invest in this stock at a price of $5.69 is to invest in its technology and not its products. As this technology might be new and believe it still have rooms to improve, I'll have to put this investment in my Stock Incubator portfolio as I classify this technology as a "startup".
Creative Technology is a company with no debt and a cash pile of S$156.7M. Its market cap is S$406.52M and at a price of $5.78, that translates into having a public float of 70.33M of share. This means the cash pile it has is equivalent to S$2.23/share. The other 2 stocks (Nordic and Valuetronics) in my Stock Incubator portfolio all having net cash, no debt at the point of my investment so this is a positive thing. As for other fundamental like PE, EPS, ROE, etc, I do not think is the appropriate time to look at as those figures are not meant for this new technology. Going forward, there will be some expectations and concerns for this investment.
Expectations
1. Creative can successfully sell this technology to be integrated into electronics/mobile devices
2. Creative main focus is on the technology rather than the products they could develop from it
3. The technology or the algorithm used is being patented and more could be generated in the future
4. Having learnt of the failure in its sound card and Zen player, the management should not repeat the same mistake in this technology
5. Creative continues to research on this technology to make it better
Concerns
1. Competitors, every business will have competition. Creative might be the first to create this technology but letting its competitors to overtake it in the future will be a big concern
2. Creative ability to market this technology. In the past it was their weak marketing strategy as compared to Apple that led to the failure of Zen player against iPod
3. Complacency, the most common weakness of human being.
Unlike Nordic and Valuetronics which now both are "free holding" (either without paying a single cent of capital or through other means the original invested capital is being recovered), a stop loss in the stock price have to be placed to minimize investment risk.
As now this has became one of my invested stock, I will cease blogging on its Technical Analysis, a norm for me in not blogging about the technical aspect of the price performance. The only exception is when the technical analysis aspect is in an unique situation that I will blog it down for archive purpose.
In case anyone want a $20 off in purchasing the Super X-Fi Amp, you can use this referral link.
