I think stock is dropping based on currency risk.
And I think the currency risk is misunderstood. If eventual sales are in yen, DM, or USD, and material costs are in yen or USD, then there should not be much impact due to currency. Deswell's big customers are obviously selling to European or American markets. So even if the sales are marked in HK$, then all Deswell does if the HK$ drops is to proportionately mark-up the price to their customers in HK$. Their customers don't mind because their eventual selling price is in marks or USDs, so the customer's margins aren't affected. The only market that will be affected will be the Japanese sales, and only if the yen gets caught up in the downdraft.
Now having said that I don't believe the loss of the HK peg should affect Deswell's business much, lets look at the effect on the stock. I've heard that the currency traders expect one more run at the HK$ in early December. If this happens, it could cause more selling pressure on Deswell stock. I would view this as a very good buying point.
If a big money manager wises up and decides to scoop up Deswell stock, this won't happen- the recent selling has been on light volume. One big buyer will reverse the recent price trend. In my case I bought more shares this morning when the stock dropped over 10% from my recent average purchase price. I am moving money into the stock. I now have about 80% of my desired position. If we get a sell-off below 16, I will fill my position.
Good luck all and Happy Thanksgiving,
Paul |
