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By Pehon | July 22, 2007
WL said
“Hi PeHon, I dont quite agree with you on your discription of penny stocks as “They belong to companies that have no fundamentals. No growth potential. No drive by the management to expand.”. Or”They are not owned by rich institutional investors. They are almost totally owned by penny stock speculators.” But before I go further I would like to understand more what are the other considerations, beyond those you mentioned above, of penny stock. Would you consider Unifiber, GlobalVoice, UMS, Firstlink, K1venture or Informatics as being penny stocks that fit your description (that I have quoted you above)?? Raffles Education was a penny stock…. Regards”
Hello WL, i do agree that several stocks that are now blue chip stocks started from no where as a Penny stock.
But with regards to raffles education, like several other companies, something must happen for it to start being viewed as a growth stock ie change in management, change in business model etc.
“For a penny stock to be viewed as a growth stock, something must happen for it to start being viewed as a growth stock ie change in management, change in business model etc.”
With regards to informatics, would you really want to invest in informatics?
Yes, their (loss) has reduced from 70M to 22M to 5M from 2005-2007, but so is their turnover. Its reduced from 185M to 50M consistantly from 2003 to 2007. As such the market has rightfully priced the company at the current $0.1 level, from its $1.0 level in 2003, at the peak of their business, the last time the company was able to make a profit.. And yes, i think informatics is a penny stock. Business outlook is bleak, and the stock is rightfully valued it as such.
“Informatics is a penny stock. And the market has rightfully valued informatics as such.”
First link is another example. They make penny profits, hence they remain a penny stock. Looking at the historical charts since ipo, they were at 0.27 levels at june 2004. thats the historical high. They have nothing to show in their results in recent times. probably the recent announcement “ANNOUNCEMENT OF ACQUISITIONS AND REALISATIONS OF ASSETS” caused a price rise in a very short term, its in my opinion a speculative trade if you were to invest in Firstlink. As mentioned, a miracle/change in business approach is needed before maybe you think of investing.
On the other hand, a positive example of possibly replicating Raffles Education’s success is Lifebrandz. They have ditched their loss making business, and currently concentrating their entertainment business, including MOS and Cafe Del Mar. I’ve been watching this company for a while now, since the opening of MOS, as this company stands to indirectly benefit from rising occupancy in hotels and the F1 in 2008.
However, the company remains at the $0.13 level due to the fact that the company is advertising too agressively, as reflected in their last FY’s report, and investors like me are still at the side lines, waiting patiently to see if the management is able to keep their cost down, and not repeat their mistakes in their recently ditched business. Hence, in my opinion, if there was a penny stock you MUST buy, go Lifebrandz. But the time might not be ripe yet.
I’m not saying penny stocks are condemned forever. But if a penny company doesn’t show the market an improved financial performance, or a more viable business model, there is no reason for investing in that company. If you do buy into the company, its probably a gamble on a hopeful change in fortune for the company.
Topics: Quick Lesson |
Comments
July 23rd, 2007 at 10:46 am
Hi PeHon, I have no disagreement in what you have said above. My disagreement is with your manefestation of what a penny stock is as posted on 20thJul07.Also the opportunity you could miss adopting that outlook. Unfortunately my subsequent post was cutoff due to space budget I think. Tried twice again still same problem. May try again later…if in the mood. Cheers
July 23rd, 2007 at 8:43 pm
hey dude. i feel your pain. haha you can send me a mail at o n g p e h o n @ g m a i l . c o m
July 23rd, 2007 at 11:07 pm
Lifebrandz seems like a bargain now, but I advise against buying it now. I’ve been following it since Jan because some big guys I know of fried it up to $0.20. Since they pulled out, it’s turned into a laggard and traded in a pennant formation. It’s 85% into the pennant and way due for a breakout, which it did a few days ago. DOWNWARDS. Better not touch it until it reverses back into the pennant again.
Fundamentals wise, I agree with Pe Hon. The company is wasting too much money on unnecessary trivialities. It’s a nice business set in the right environment with a host of upcoming opportunities, but too bad about the poor management. The costs they run up are just too ridiculous at the moment.