Joseph,
I agree with you about traders should generally avoid illiquid stocks.
I disagree with you entirely about investors avoiding illiquid stocks.
I bought 2000 DSWWF warrants on 11/21/96 at 1-1/32, exactly a year ago. The stock (DSWLF) had a P/E of 6 with about a 20% earnings growth rate. I'm glad that I was an unreasonable investor and took advantage of this illiquid stock instead of buying a liquid stock like KO (Coca-Cola) with a P/E of 35-40 and a 18% earnings growth rate and a 10% or less revenue growth rate. Now that DSWLF has a P/E of 8, I'm willing to be an unreasonable investor some more, especially since revenue and earnings growth is accelerating.
Yes, illiquidity is sometimes a disadvantage, but it also can give tremendous value and the company can buy back shares.
ELXS is one that I bought a few years ago under 5 when the P/E was 6. They bought back 15% of the company one year and earnings are up and the stock is more than double with a P/E still under 10. The key is to find companies that perform, and any company that can consistently grow earnings by 15% a year and especially 20% a year is worth holding on to unless you have to pay too much to get in (i.e. KO with a P/E of 35 is a great company with a price that it can grow into in 3 more years).
If one thinks Deswell can continue to grow earnings by 20% a year, then it is a steal at these prices. If one is concerned about the currency crisis, then the illiquidity is a major downside. I imagine most investors in this stock at this point are value players. The momentum players who bought this in the mid 20's should have enough discipline to have got out with a 7-10% loss. The value players are probably doubling up if they bought it at 25, since they like it even more at 18 and the company keeps performing.
Please point out 10 or 20 more illiquid stocks with earnings and revenue growth rates of 15% more and P/E's under 8 for me so I can be an unreasonable investor.
RHT was at 2-3/8, 2-1/2 years ago when I first bought it. It had .34 in earnings and .43 amd .54 the next 2 years. It's not as undervalued anymore.
PLCC is more than double the low this year and now has a P/E of 5. It has returned almost 1000% in the last 3 years.
JWC was at 3, three year ago with a P/E of 4. It has split and is trading around 13 with a P/E of 8 now. So....,
please show me some more stocks that and reasonable investor would shy away from with low P/E's and steady, consistent, 20% + growth rates.
I'll take the 20% profit increases, and wait patiently for the multiple to expand.
You sound like you have a good discipline and if so are probably a good investor and maybe also a good trader. There are many ways to invest, and those of us who feel comfortable with this type of stock will do well in the long run, also.
regards,
Richard |
