I am writing this in response to a recent bullish article (by Alpha Vulture) on Emeco Holdings (OTCPK:EOHDF). Although the article covers liquidation value assessment quite extensively and mentions some of the risks (low equipment utilization, haircuts on book value upon sale and debt burden), I believe some vital bearish arguments are missing.
Cycle is not likely to bottom out yet
Emeco's valuation in the previous article rests on the assumption that 2013 was the bottom of the cycle in the mining industry and things will improve going forward. However, if history can give us any clue, mining industry cycles usually take longer than a year to revert. See the charts below depicting volatility of Caterpillar sales and...
|FREE||SA PRO MEMBERS|
|IDEA GENERATOR||X||Exclusive access to 10 PRO ideas every day|
|INVESTING IDEAS LIBRARY||X||Exclusive access to PRO library of more than 15,000 ideas|
|SECTOR EXPERT NETWORK||X||Exclusive access to all sector experts for direct consultation|
|PERFORMANCE TRACKING||X||Track performance of all PRO stock ideas|
|PROFESSIONAL TOOLS||X||Professional Idea Filters to zero-in based on industry, market cap and more|