Megan: Part XII
Friday, March 31, 2006
I would like to share my dialogue with Grow_Thru_Life in the blog posting, Megan: Part XI
Grow_Thru_Life:
- Looks like the price went up as expected. I'll have to agree with Moola to 'show me da moneyzz' when it's loan increased and cash flow is decreasing.
Well, I'd decided not looking anything about it until its next quarterly report. There should be other stocks more worth to study on...
Anyway, I just wonder whether technical traders will buy in, seeing it's in uptrend. It'll be an interesting study on investor's behaviour for this.I wonder do they teach about investor's behaviour in uni?
My reply:
- Yes, when a company reports such a surge in corporate 'earnings', it is pretty likely that the share could see some demand in the market, resulting in a sharp rise in the share price.
So how does this all this translate to the market player?
For me, I believe that an investor's primary objective is to invest in only the good, quality companies at a reasonable price. And if that is the case, then the share price or the market reaction to the company's earnings is not in the equation. For the focus is always on gauging the quality of the company. ( If one puts the share price in the equation, the investor focus gets muddled because the likelyhood is that the investor might be focused on what the share will do in the market, will the share go up or will the share go down. And the actual focus on the quality of the company is soon forgotten. )
Now if one is a market player, looking constantly to find a way to make money in the share market, then the study of the market behavior and also the market trends is utmost important.
Which is a total different ball game.
Yes?
Which is right and which is wrong or which is the best way.. will always depend on the individual.
Right or not?
Anyway.. here's another food for thought.. ie... if your focus is on the company... ;-)
Megan reportedly 'earned' some 20 million ringgit this current quarter. And yet this 20 million did NO good at all for the company. As argued, there is NO creation of wealth at all.
How?
How much do you reckon that Megan will need to earn?
How much do you reckon that Megan will need to earn to seduce some real investors?
40 million?
60 million?
And let's put that debt issue into perspective. Despite earning 20 million, debts has increased by another 25 million.
How? Will Megan be able to setttle their 750 million debt?
And at this rate... LOL... Megan will soon become a billion dollar company... a billion dollar in debt company! (Not possible? Or am I being too cynical? )
And then, the implications in the issue of the sharp rise in inventory and the extremly high trade receivable is extremely serious and cannot be discounted at all.
Why is the inventory increasing so much?
What kind of inventory are we talking about? And since Megan's products is high tech, we really need to find out if the rise in inventory is caused by 'dead' stock.
And what is so bad? Well.. what if Megan needs to write-off these inventory? 102 million wor. No small amount.
And then the trade receivables.
Such an extremely high trade receivables in Megan's books makes its sales/earnings questionable.
Yes?
No seriously sane businessman conducts their business in such a manner. Now when you consider that their ytd earnings for 3 quarters is only some 36 million, which sane businessman would have a trade receivable totalling more than 320 million? Doesn't one suspect that something is wrong somewhere?
Ok, let's give Megan a benefit a doubt...
Let's consider that there is no hanky panky here and that the company really does have some 320 million in trade receivables.
Now the question then is why isn't the company collecting it?
Is there a problem collecting money from these so-called receivables?
But since the trade receivables have been constantly increasing, would one be wrong to conclude that Megan is seriously having problems collecting money?
And how about putting their debt issue into perspective.
If Megan could collect all these debts, then Megan need not borrow so much money, right?
And since Megan had to borrow so much money, then isn't there a strong likelyhood that sooner and not later, Megan will have to write-off these trade receivables as doubful debts?
Hmm... 320 million...and if they write-it off... how much losses do you reckon Megan have to record?
Hmm... could I be wrong?
Of course it is possible... but what if I am correct?
And worse still... what if I am correct on both counts?
What if Megan's inventory and trade receivables has to be restated? (320 mil + 102 mil wor!!!)
Double whammy?
Quick ref:
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