Melewar: Part II

Here is an update to this blog entry: Lawar kah Melewar?

As mentioned in that posting, one of the best investment advice i have read is the following:

A stock begins to show decaying fundamentals, such as lower profit margins or lower return on invested capital.

Another way of saying it is:

Remember that a stock represents a business, and, when its management or its products fail you, sell -- without delay and without sentimentality.

And think of this saying by the great Warren Buffett:

A stock doesn't know who owns it. You may have all of those feelings and emotions as the stock goes up or down, but the stock doesn't give a damn.

Melewar Industrial Group reported its earnings on 23rd December 2005.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

Sales 128.095 million
net loss 4.443 million

Compare these earnings performances with Melewar's track record: Melewar's track record

Isn't this company fundamentals on a clear decline?

And here is where the understanding and knowing the business itself was very important cos investing is never as simple as investing based on yardsticks. Commonsense and being rational is rather important too!

Now, Melewar used to be called Maruichi Malaysia Steel Tube. Maruichi's original owners had since sold its business to Melewar group in 2003.

And since the original owners had exited the business, we are essentially looking at two different stocks. Tiok boh?

And the track record posted in Melewar's track record clearly showed it all. After the exit of the original shareholders in 2003, the performance of the company started to decline. The fundamentals of the company has changed too as previously, the old owners operated Maruichi strictly on a nett cash balance sheet. The new owners is running Melewar group in a nett debt of over 200 million. Two different stocks isn't it?

Either way, commosense tells us that this stock of old and this stock of current simply ain't the same.

How?

Yes, the stock used to be good but the stock ain't the same stock as before because of new management.

Based on current available facts, in which we have a company with decaying fundamentals, do you think that it is prudent to ass-u-me that since the stock used to be good, it will be good again in the future?

Look at the stock and its fundamentals.

Isn't it simply not the same anymore?

Is it wise to make such a bet?



Oh, Melewar closed the previous day trading at 1.12 and its warrants is at 0.17. ( When i wrote on Melewar, it was trading @ 1.26 and its warrants is trading @ 0.205))