The November issue of Ultimate Value Finder is now out. I covered three investment opportunities:
Investment Opportunity 1
Not too long ago (June 2012), the stock price of Investment Opportunity 1 was trading for $0.36 per share. For the fiscal year 2012, which ended at the end of June, the company earned $0.33 per share. This meant that it was trading for a P/E ratio of a little more than 1. I don’t even know what to say other than this level of cheapness requires its own classification of undervaluation. Some investors were so stunned by this that they said that the company was too cheap to even be legit. It must be fraud. Well, it is not fraud.
Since June 2012, the stock price of appreciated 40 percent to $0.50 per share. There were a few positive press releases during this time, but I have absolutely no idea what made the stock price increase. Yes, the company announced $0.33 in earnings per share, but this was no surprise. Anyone who was paying attention to this company knew the range of where the earnings were going to be.
Could it be that investors came to their senses and realized that the stock was simply too cheap to stay at these levels? I doubt it. Sending the stock to $0.36 per share while the company was earning $0.33 per share tells me that not only are investors lacking common sense, they are missing their entire brains.
Investment Opportunity 2
Investment Opportunity 2 became an independent stand-alone company in March 2002 after it was spun off from its parent company. For the next five years, everything was wonderful. The company was gaining clients, and consequently, revenues and profits were growing fast. Wall Street happily rewarded the company’s stock with continuous appreciation. The stock price increased from $5 per share to almost $40 per share. But, then the music stopped and excruciating pain began. On October 23, 2007, the stock price dropped 44 percent in one day. Since then, the stock price decreased another 75 percent.
The reason for such horrific deterioration in the stock price was the economic contraction which caused the number of clients to be cut in half from the peak in 2007 to 2011. This impacted total revenues negatively and while the management should have seriously cut all the expenses in order to align them with the reduced revenue, they increased them instead. This had a devastating effect on the bottom line.
Finally, one shareholder had had enough of the management’s inability to reduce expenses and bring them in line with revenues and decided to take action. It obtained seats on the board of directors and now things are finally starting to happen. If some changes can be implemented successfully into the company’s cost structure, the company’s stock price could appreciate anywhere from 100 to 200 percent in the future.
Investment Opportunity 3
Over the last seven years, Investment Opportunity 3 has grown revenues by 626 percent and earnings by 1,516 percent. The company was able to achieve this performance by growing internally and externally through strategic acquisitions. Because of its scale, the company is able to acquire independently owned businesses, eliminate redundant expenses, and build value for shareholders.
While the past growth has been nothing short of phenomenal, the future continues to look bright. One would imagine that a stock lie this would be priced for perfection. And it would be if it wasn’t for one little problem, and you know how much Wall Street dislikes problems.
However, what Wall Street has a hard time with is differentiating between short-term and long-term problems. Long-term problems are serious and cannot be underestimated, but short-term problems are usually opportunities to buy.
If you an Ultimate Value Finder subscriber, then you already received a separate e-mail with the full November issue. If you didn’t subscribe yet, but wish to do so, click here.