There is a rising trend in its EPS. However, earnings are rather cyclical, as evidenced by its ups and downs.
Poh Kong has grown its revenue and earnings through opening new outlets. Its SSS figures are probably stagnant (this need to be confirmed). It has acquired a lot of debt in growing to its present size. Though its recent CFO and FCF are strongly positive, its FCF will mainly be used for paying down its debt and reinvesting into new stores. Its DPO is in the region of 20% of its earnings and its DPS has increased little if any over the years.
Its ROE in 2009 was 10.05%.
Is Poh Kong a Great, Good or Gruesome stock?
Not a Great stock. Perhaps more a Good stock rather than a Gruesome stock.
So, perhaps it is better to skip this stock and search for another.
But then, let's look at the fundamentals of Poh Kong.
http://spreadsheets.google.com/pub?key=tx8wcqGqfTVH8s7RRSy-19g&output=html
What should be its intrinsic value? Note in particular, its net working capital minus total debt owed equals RM 146 m.
At a price of 39 cents, its market cap is RM 160 m.
Therefore, effectively, the investor is buying the whole business of Poh Kong for RM 14 m.
Is Poh Kong not undervalued? Severely undervalued?
Moreover, owning this stock gives you a DY of 3.6%. Given its strong FCF, this dividend level can probably be sustained and this should protect the downside of your investment dollar. Therefore, the upside reward/downside risk ratio is also favourable.
Disclaimer: Please invest based on your own assessment and decision. Always do your own homework.
Also read:
What are value traps?
5 Value Traps to Avoid Right Now
I’m all for buying stocks on the cheap. But there’s a catch: We’re only interested in good values if they also happen to be great businesses, companies with years of exceptional performance behind and ahead of them. And, of course, ones that pay us to wait for our thesis to play out.and this:
Understanding "Value Trap"
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