Crossy, SmartHeat (HEAT) -- I believe its a huge over-simplification to compare a company whose sole market is China, with others who operate either worldwide or in other markets. There is something very special going on in China now, with continued robust economic growth going on in spite of the worldwide economic slowdown. Also, they have more of a pollution problem than just about anywhere else on earth, as far as I know.
Here is what BMO had to say about the PHE market in China:
"The China Heat Association estimates that the market for PHEs in China was roughly $2.4
billion in 2007, and that it should grow at an annualized rate of 30% through 2010. Similarly,
the China Heat Association estimates that the 2007 market in China for PHE Units was about
$139 million; it is expected to grow at an annualized rate of 70% through 2010. We also believe
these industry growth rates will extend beyond the 2010 time frame. We believe that such
market growth is partially driven by the expected continuation of industrialization and
urbanization trends in China. However, other important factors include energy efficiency
mandates and incentives from the Chinese government."
PHE units accounted for about 63% of HEAT's sales last year, so HEAT has a market growing at 70% a year, for most of its products. The worldwide PHE unit market will probably grow at a small fraction of this pace. The faster market growth rate explains why HEAT should trade at a much larger multiple than an international company such as Alfa Laval. The 2 companies might be in the same general space but because they serve different markets, they are like an apple & an orange.
If you take such a simplistic approach with your investment choices, as to only blindly go for the companies trading at, say, the lowest price-to-sales ratios, by definition that means you will restrict yourself to low-growth situations, IMO. |
