When I first invested in 2014, the price was just $0.1037 and at a price of $0.63, that translates to a capital gain of more than 500% apart from a dividend yield 10.13% with reference to my holding price. Those figures do look good on my investment but deep down I knew the price has overrun its fundamental already. In fact back in March 2017 I divested 48.39% of my initial stake at a price of $0.32, a realized gain of 207.60% excluding dividend return of 19.95% (refer here). At that price I felt it was fairly valued then and the divestment decision was a strategic one as the amount of realized gain equate the initial capital I've put in. As such, all the initial capital that I've put in is gotten back, making whatever I'm holding as free hold and whatever the price it is now is just pure floating profit. This is to strengthen my margin of safety for this investment and at the same time remove the cut-loss level.
So, why am I saying the price correction now is price overrun fundamental rather than change in fundamental ? When I first invested, I have expectations for its business (investing in the stock is like investing in the business and not investing for the stock price). Those expectations were listed in previous write out and reproduces as followed.
1. Total Revenue for the company to hit the S$100M level
2. Profit Margain for the company to hit the 20% level
3. ROE of the company to hit 20% level
4. Current Ration for the company to hit 2.0
The above are the basic expectations I have for the management to grow the company business going forward.
The above chart showed the data for the above 4 expectations since 2014. As can seen only the ROE part has reached the expectation while the other 3 still moving towards their respective expectation. As a whole, the trajectory is still moving toward the expectation and hence the fundamental remain intact. However, as not all expectations have been met, the share price is already hitting 6 times of my holding price (at its all time high). This is clearly price overrun fundamental. Moreover, the company has always been in net cash position since 2014 when I first invested but in the current FY18 it starts to chalk up net debt of S$4.66M due to the acquisition the company has made over the past years. This does have a little concern for me and probably reflected by the price correction too.
Swiber was one of my past Stock Incubator holding but was sold off due to price hitting the cut-loss level before things gotten worse and I only suffered a small capital loss. Then the aggressive in winning contracts to grow the company accompanied by increasing debt level with the profit margin failed to offset the rising debts was the cause of how it ended up in today state. That was the lesson I've learned and taking that lesson into consideration, I would rather Nordic Group's management to slow down on possible acquisition to grow the company at this moment and focus on managing the debt level. While the debt level has not increased into an alarming level, I believe the management is cost conservative enough to realize the importance of containing the debt over growing the company at all cost. As such, this further justify the current correction of the price -- a potential drop in revenue and profit margin for the short to mid term.
Now, what the fair value since price is being corrected due to price overrun fundamental ? How to judge the fundamental of a business is very subjective to each individual and as such, the fair value is also subjective to each individual. It makes no sense for me to state the fair value since it is a subjective figure. Rather than focusing on the share price movement, it would be better off focusing on how the management going to run the business with each of the decisions they are going to make.
From a subjective point of view on the company fundamental, it is still intact with the trajectory toward meeting the expectations on course despite the current short to mid term weakness.
