I like the stock more than ever.
The more I have learned about the company and Marks, the better I like the stock. He is an unorthodox manager/leader, who seems to focus on what is right long term, and takes calculated risks. If the short term suffers, so be it.
I sold 400 shares recently at 23 1/2 to complete a rollover to lower my tax basis on these shares from 28 to 18. I hold 13,500 shares bought at an average cost of 23.20, most of which were bought in March and April. Most every time it dips to 20 or below, I buy, and this has lowered my average cost. (I started buying when the stock was at 26.) I may do a little selling for tax purposes 30 days later (after the wash sale period expires). I don't know if my comment on this selling caused your "bagged" comment, but I really don't think any of us can really move the market in this stock under normal circumstances.
If you buy now, you're buying 10% below my average, and 15% below the insiders who bought in February.
Yesterday's price action was not good, and the volume was extremely heavy. I don't think people like the fact that the complete financials are delayed, but I found Marks explanation convincing and logical. I guess I am naturally contrarian.
You also wrote: But don't forget that predictible earnings growth drives the P/E much more than sales.
There are several ways to value a stock, and earnings growth is just one way. One can also look at the value of the assets held, less liabilities. Or one can look at the independent value of the businesses that make up the company (the "break-up" value). Finally, some argue, that the ability of management, and capability of the management system, should be considered critical in the valuation process. I believe that no "one picture" accurately describes the entire system, and that to really understand the valuation, you need to look at it in several ways.
I tend to like to use PSR in the ECM sector, because I believe over the long term the margins in this business regress to 4-5%, which is the sector average margin. So revenue growth is a key in the valuation process for me (of course, there are exceptions to this). But I also like to think in terms of how much the businesses would be worth in a sale.
Take the Astron purchase for example. We have all heard the hoopla over how to account for these business on the balance sheet. But was the business worth what Flextronics paid? Unfortunately, its difficult to answer that question since we don't have the individual financial numbers. But based on the statements by Marks, and by the performance bonus paid to the sellers, the performance of the unit seems to be in line with expectations. The timing of this purchase of a Hong Kong based business, along with the purchase of FICO Plastics, seems to have been excellent. To compare, look at the price of Deswell Industries (DSWLF)stock, which is in the same businesses in China, last year versus this year. I think both businesses were bought at a good price.
ECM businesses when sold seem to sell for around one times revenues on average. The lowest deals for independent ECM businesses I have seen, have been for unprofitable businesses sold for about 0.50 times revenues (recent Century Electronics sale to DDL). There have been some deals were the business being sold was an operating division of a larger company, where the sales price was as low as 0.35 times revenues (Flextronics buy-out of Ericsson plant, Onyx buy out of Celestica from IBM).
Based on this, I find FLEXF's overall forward PSR of 0.38 as very attractive. But there is the weak balance sheet. As for management, I really think that Marks has put together a strong management team, and it seems to be getting stronger. Note that Marks record as a CEO at several companies is excellent; Stephen Rees was the CEO of a successful board manufacturer; and Ronny Nilsson has extensive European electronic manufacturing experience/contacts and put the Ericsson deal together.
For me, a strong bull on this sector, an overweight position in this stock makes sense.
Paul |
