Amisco Industries Ltd. (IAC)
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KSW, ePlus Look Like Bargains [view article]
I agree with you on KSW with so much in cash and such a solid backlog and high ROIC and now bidding on a number of new projects this is a very attractive investment. ReplyKSW, ePlus Look Like Bargains [view article]
Paul,I was thinking about that yesteday as well, the risk/reward ratio. Indeed if the stock is worth maybe $3.15 in the worst case, the risk reward ratio is still over 3 based on what I really think it's worth. I'm not trying to know the company better than management, I believe it's a fallacy that you can really do so, I want to know everything I can from an outside perspective.
Cash is cash until they starting burning it, which is another risk in an "earnings collapse" scenario. When looking at R/R, the entire downside case must be considered. So if I say to myself "ok, what else?" in the case of an earnings collapse that might be cash burn. See TRID, which I mentioned above, for this scenario.
While these are not "probable" scenarios, they cannot be glossed over, not least of all for a small company without recurring revenues or a wide moat.
Your analysis, for the most part, is right on though. The investment is no doubt a smart one at these prices.
-Jeff Reply
KSW, ePlus Look Like Bargains [view article]
Jeff,Agreed you must consider all risks when developing a margin of safety and you are right to point out that they don't have a recurring revenue model. Still when developing an investment thesis it is important to consider risk vs. reward and using your assumption of a cash floor at $3.35 puts the risk at $1.65 per share. Where the reward with continue growth is ~$10/share, upside of $5. That is a sufficent risk to reward ratio for me as an investor.
So with that said, I don't care to pour into the day to day activities and know them intimately or else I would apply to work at the company. I put some level of trust into a managment team that has performed admirably to date and combine that info with a healthy balance sheet and develop my buy decision. Now it is in Mgmt's hands and all I can do is hope that my anaylsis is on target and modify as new information is revealed.
If I am wrong I sell when I realize I am wrong. If I am right I add to my postition when the time is right and wait to sell. I have owned KSW at $6/shr and my ananlysis still indicates that I am making a smart investment so I am adding to my position at this level.
Good luck to you in your investment decision.
Paul Reply
KSW, ePlus Look Like Bargains [view article]
Dave,I figured as much, that's why I mentioned my uncertainty. Thanks for the comment, I appreciate it.
Paul,
Good assessment, and I tend to agree. I am already very impressed based on the numbers and reading I've done so far. I just want to be sure.
I'm not worried about a stoppage of growth, however. What I'm worried about is an earnings collapse. I understand that the next year and a half, maybe two are pretty much covered by the current backlog of projects. I'm also trying to understand what could possibly happen to that backlog. As I said above, if the earnings are stable, not even growing, the margin of safety is a monster. If the earnings are subject to a collapse (very small company, not a recurring revenue business model i.e. they must always be receving new projects)), the margin of saftey is current cash plus future cash on already backlogged items that will be completed in the next few years. If we assume they do generate 2.2mm in cash this year, that leaves them with $20.2mm, or ~$3.35/ share.
My point is, downside risk is there in that if they lose new revenues, prices keep rising without the ability to pass them through, or there is a blip in their operations, there won't be much to add to existing cash for a full valuation.
While I'm not saying this is likely, all risks must be considered to find a true margin of safety.
Any other comments or thoughts I would appreciate.
Reply
KSW, ePlus Look Like Bargains [view article]
Jeff,Couple of comments of KSW. Your evaluation is right on as far as I can tell. However, I disagree with you about margin of safety. They have $18MM in cash and $140MM in backlog. If that isn't margin of safety I don't know what is. Not to meantion that the backlog is not with one project.
1) I think is safe to say that the work resonably expected to be complete by the end of the year ($50MM) is safe. That will bring in an additional $2.2MM in earns this year or ($0.35/share).
2) The company has a floor of ~$2.90 based on the $18MM is cash on hand. Furthermore a majority of the $2.2MM in potential earnings for the rest of the year should go directly into the current cash holdings.
As for dividend, I wouldn't expect a quarterly dividend from KSW. They stated in their 10k that the companies dividend policy is set annually based on annual performance.
Overall if you look at is from a risk versus reward stand point. Your max risk is $2.13/share if KSW trades at cash. But even if KSW stops growing it will not trade at cash so lets say it trades at 3x's EPS(ttm) plus cash or $4.3/share or $0.70/share downside.
Your potential reward is $0.7*15 = $10.5 or $5.50/share upside, assuming a 15x's P/E on 2008 expected earnings.
That translates into a 7.8:1 Reward to Risk ratio. Not bad.
Good Luck
Paul
Reply
sack
KSW, ePlus Look Like Bargains [view article]
Jeff,That wasn't a quarterly dividend, it was an annual one. There are no plans, as far as I know, for KSW to initiate a regular quarterly dividend. Reply
Take Advantage of Crazy, Paranoid Mr. Market [view article]
There are quite a few strong opportunies amongst the growing legion of NYSE traded Chinese stocks. These stocks did not receive nearly as much hot money as the A share market and some sectors, like online multiplayer games, are trading like value stocks even though they have 70% operating margins, half of their market cap in cash with no debt, 100% growth rates, and forward PEs of under 20. ReplyEditors
General Discussion on IAC
Is this a buy or a sell? Reply