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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area

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To: Ed Ajootian who wrote (34763)	10/18/2009 6:24:37 PM
From: Crossy	Read Replies (3) of 37387

Ed, well, I don'T dispute their growth potential, however they are just a single player in the PRC market, and their own 10K mentions Alfa-Laval as the biggest player in China. For the PHE industry, 30% annual growth rate with a 50% gross margin imho doesn'T justify a PSR of 6 or beyond for its players. While blended growth rate might be somewhat higher, maybe 45-50%, it'S still pretty expensive. If you are willing to pay up here it'S fine with me. I am not. To me this is China craze gone rampant. I'm a value player - not intending to become a bagholder. To find such situations at PSR around 1 is what I consider prudent - not jumping on top of an already much touted stock idea If you want a backgrounder on the Price/Sales ratio (or its more complete sibling - EV/R) I'd suggest to look at the writings of Ken Fisher - it'S all there. It'S pretty obvious that PSR (or EV/R) needs to be applied across ONE industry and not between industries as this ratio is depending on the value chain and margin potential. It'S true, higher growth situations can command a higher EV/R ratio but 6 is a value I gladly pass on... You won't believe it but this is my "first test" (besides indebtedness) for manufacturing firms. Resource and extraction plays are indeed different. But I don't get into the top EV/R (PSR) ratio players within an industry as a matter of principle. Ultimately all these firms have to JUSTIFY their valuations. rgrds CROSSY BTW: just found another US based heat exchanger play on the NYSE, ticker is SPW. I'd rather watch ALFA.ST, LXU, MOD, AAON, SPW for a good entry point. Thermo-solaire applications will be a frugal way to conserve energy - unlike the photovoltaic mania. And it will extend to all the world, not just China

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