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steer clear of the value trap - pet polyester film

by:Cailong     2019-07-25
steer clear of the value trap  -  pet polyester film
Value investors usually choose stocks with relatively low prices. to-book (P/BV)or price-to-earnings (PE)
Ratio and high dividend yield.
Recent economic slowdown
Euro zone and domestic economy-
There are many opportunities.
As stocks fell more
Lower points and lower P/E ratios per year, investors tend to look for cheap stocks.
On the surface, a stock is 52-
The weekly low seems to be a value purchase, but it is dangerous to buy just according to this logic.
Usually, there is a good reason why stocks are cheap.
For example, if a company is facing bankruptcy or a sharp drop in profits, the market may severely punish its shares.
The stocks found it difficult to make a comeback because they relied on weak fundamentals.
So investors need to avoid these pitfalls.
Here we list the four common pitfalls you have to find --
Stay away from them.
Remind people to remember the fact that cyclical stocks and companies that are highly commercialized in business: their valuation andintuitive.
People can easily lose their life savings on cyclical stocks they buy during peak hours.
However, when these stocks reach the peak of the earnings cycle, they always look the cheapestversa.
Even high dividend yield
Some stocks in the industry offer-
This is gone as revenue decreases and management cuts dividends.
This happens over and over again, and investors are constantly becoming prey to it.
For example, the past year.
Due to the rising global demand for packaging and supply shortages, PET (polyester)
Movie makers such as Jindal Polyfilms and UFlex have been publishing a lot of data in their operations.
As a result, their shares rose.
Despite this, their stock is barely 5-
Their p/e ratio is seven times.
Some of them even gave 5-6 per cent.
However, you should keep in mind that the volatile nature of these cyclical stock profits means that they may look cheap just as their income is about to fall off the cliff.
The profitability of the industry is declining as new factories are put into production
Cheap stocks are cheaper, so they are more profitable.
However, the past experience tells us that there is a cycle of 2-in the PET film industry-
Three years, the corresponding increase in stock prices is limited.
The decline in PET film manufacturers is just beginning.
There is still a lot of time before earnings are really stable.
Cash is king, but when companies that pile up a lot of cash are threatened, cash is not king.
Stocks, however, are not always a good investment option. Here’s why.
First, the company may have debts on the books that must be paid in cash.
Second, although excess cash belongs to shareholders, management can use it according to their own judgment.
Many times, management is trying to pack small companies, pay huge valuation premiums, and burn money in the process.
Decan Chronicle Holdings.
The company is the best example of the fastest cash loss on the balance sheet.
As of September 2011, the company had a large amount of cash, and the stock price began to fall, with the market value reaching almost the same level as the total amount of cash.
However, due to their investment in India's premiere alliance, all the cash is gone within a year (IPL).
The company's retail business has also suffered losses and is now facing huge liabilities.
The stock has fallen to the submarine. Rs10 level.
The moral of the story is that if a company continues to take risks and burn money in different fields, be careful.
Balaji Telefilms.
According to the current share price, the market value of the company is Rs282 crore.
It has zero debt and 20 rupees in cash.
The recent movies have also done a good job.
Although Balaji Telefilms looks cheap considering the cash on the balance sheet, looking at its annual report shows that the company has an impact on Rs322 crore-
It's really a big risk.
Even if half of them are realized, a lot of cash will disappear from books.
Continue next page. . .
Book value that is inflated or not adjusted-to-
Book value is another measure of investor value.
However, the book value of the company is sometimes exaggerated.
Especially for companies that have already made acquisitions, the book value mainly includes goodwill, which exceeds the value of the assets it pays.
This kind of kindness is easy to write down
Ups and Downs or damage.
Similarly, changes in accounting policies have resulted in inflated book value.
In addition, in the capital
Intensive Enterprises, until the completion of the cost of interest will increase the cost of assets, so that the profit and book value expand.
In the event of significant project delays and cost overruns, adjustments can be very high.
In this case, the book value has no meaning or price --to-
Book value lost relevance.
Reliance Communications.
A recent report by Veritas Investment Research shocked the share price of RCom, which has already traded around 0.
It is six times its book value.
Veritas said that various mergers and mergers resulted in the formation of rs22000 crore or Rs100 per share in RCom, that is, "inflated book equity ".
After adjustment, the book value is located at Rs74, well below the Rs174 shown in the RCom books.
Investors tend to ignore the large amount of convertible stocks owned by some companies.
However, if a convertible offering is made in the event that the stock has been traded cheaply, the proceeds will be severely diluted. IFCI.
The price/earnings ratio of IFCI stock is about 4, which is very cheap considering its long-term priceRegular valuation.
However, the company issued convertible bonds worth the Rs900 crore to the government in 2001.
Now, as the government decides to convert the bonds, the income of existing shareholders will face more than half of the dilution.
Investors holding shares should take this into account and invest accordingly.
Jaiprakash Associates.
Although the stock price is low, it is still falling.
This is because the company has failed to get rid of its convertible tools and huge debts. Its new 5-
Convertible bonds in foreign currency (FCCB)
Problem, the conversion price is set to rs77.
By any standard, $50 per share is low.
This may lead to substantial dilution of future shareholder income.
Therefore, stocks should be avoided even if they are traded below their book value.
Continue next page. . .
How to find a value trap, find out if the income is about to peak, and see the return on equity (RoE)
And profit margins across the industry.
If RoE and operating margins exceed 25-
Revenue may be close to a peak. Price-to-
Book value is a better tool than PE to evaluate cyclical stocks.
Stocks below book value are usually cheap.
When checking cash
Rich companies, look at the performance records of management --
A poor person can burn cash quickly.
Also, look at or have liabilities and debts.
Avoid companies whose financial statements are too complex.
If you can't understand something, the company may be able to circumvent something.
Always adjust the book value of goodwill that appears on the book.
For companies with a large number of convertible shares, the PE ratio is calculated based on diluted earnings per share to assess whether the decline in the company's share price is temporary or permanent.
Do you really think the company can turn things around?
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