Raja,
I don't know how much experience you have with small and microcaps but too many have what they claim to be "the ultimate" solution for this that and the other thing. One thing that you learn is that companies inevitably offer you an opportunity to buy regardless of how good they are -- sure it may be at higher prices, but risk and return are a fairly basic concept -- I like to look for companies that have great potential but low risk -- and opportunities like that can be found.
I don't think that is the case with IHI. Don't get me wrong, I'm not saying that it won't go out... it could very well do so, I'm only suggesting that there is still significant risk at these levels. It's easier money and probably a lot more profitable to wait for later innings in a growth company when they have proven themselves (it has taken IHI something like 5 years to get to this point meanwhile your capital could have probably been used more effectively elsewhere) -- especially with a few continued nagging questions.
In any event, I haven't been following IHI in the last little while but I've read up on the latest developments. You ought to ask prefab about TTRIF -- another company that he was absolutely certain of only to be burned pretty bad.
You really shouldn't fall in love with any stock. If this were a perfect stock in terms of the issues that I outlined, the company would still not trade at $100 -- I realise you're being facetious but consider the fact that it would mean that it would have a market cap of something like $7 B. And don't think that great companies don't exist even at such low prices I rode one from $1.50 CDN to 23 USD -- and it wasn't even a tech.
So here goes again with the red flags:
- Related Party Transactions: The only concern with this is that someone in management is paying themselves a whack load of cash when the company isn't even operational -- and they're not being quite upfront about it. Why should they keep on collecting fees all around for activities that they should be doing anyway and especially when the company is so signficantly cash flow negative? (this skepticism comes from having a decent familiarity with several small and microcaps). A much better system would be rewarding him with shares or options -- better than cash, sure it's a little dilution but you know that he'll work harder. You can't say that you've been having problems raising money on one hand and then start paying yourself $200K+
- Competition: You said - "As far as we know, IHI has no real competition. Once in production, it will take years for them to meet demand." I don't know if you had read or not, but I did mention American Home Products (http://www.americanbuildings.com) to Royal Group Technologies (http://biz.yahoo.com/bw/000221/royal_grou_1.html) -- both with their unique niches in steel homes and the other in plastics -- and both with significantly more resources than IHI. If an area is identified as highly lucrative, don't delude yourself into believing that it will have the market to itself. IHI may carve out a lucrative niche -- but it will not own the market by any stretch of the imagination.
- Subsidiary: A less than fully owned subsidiary (72%) that has been slated to be sold anyway to trade on its own. The notes to the financial statements state explicitly that they will try to sell these shares to current shareholders on a "best efforts" basis. Considering that the foreign markets are the most lucrative, and that the subsidiary has the rights to all other markets other than Canada, I'd rather buy the subsidiary later if the system is as good as people like yourself appear to claim. The wording although also appearing in last year's report makes it sound as if the sale could happen at any time. Having seen the shenanigans some companies can pull with subsidiaries, it takes a significant leap of faith to trust management in this regard especially in light of the negative press (again ask prefab homes about his experience with Thermo Tech).
- Auditor: You said in reference to my statement that it did not have a big name auditor - "That is a silly point. Why should they? What a waste of money IMHO." IHI isn't such a large company and lots of large firms will offer significant concessions in fees so long as they believe that you are going to grow significantly. Having a big name auditor only offers credibility. Not to say that their auditors aren't good, just that they aren't known by the market. Large name firms are different because they are more concerned about their stature than that of their clients and are quite risk averse in general. If you can pass the rigors of a risk assessment (something that they do prior to accepting you as a client), that bodes well. If you're doing complex international agreements, having a big name auditor can actually save money and lots of headaches.
I'm not trying to rain on your parade, but I don't think you've considered everything about this company. I think it's a great concept, and it could very well succeed, and you could make a tonne of money I think I would need more information. On the plus side given the conversion prices of the recent pp, you would appear to have something good to look forward to. As to participating on RB, I'll pass. I've had dealings with Thermo Tech with prefab that were less than pleasant -- he attacked me pretty heavy handedly while I was presenting simple arguments why his generally simplistic reasonings in support of Thermo Tech were wrong. Meanwhile he would imply that he had insider information that time would inevitably prove were without merit. May he'll do better this time because he's in the business.
One thing that does interest me is the involvement by management in having actually developed the product. I would be interested in seeing more details of what you describe to be a resolution with the former directors. When I'm in BC I'll give them a visit, but in the meantime, I'll wait.
Clement |
