There is a company out there with the majority of its operations in China. It has had an incredible, unbelievable run in its stock price, up 400% from the bottom in 2009. This run has been supported by impressive sales numbers, growing the top-line (revenue) by better than 50% per year for several years running, and the bottom line (net income) by better than 70%. <\/p>\n
They are in a business that is apparently not very capital intensive: their PP&E is less than a third of one year’s earnings, yet their margins remain very strong. This company generates an impressive amount of free cash, with minimal capex requirements (the single largest use of cash, by far, is for “investments”, which commentary indicates are largely fungible bonds). They carry an incredible amount of cash: 10X inventories, and almost 3 year’s worth of capex, in cash, at any given time. Including investments, they have resources to cover their current inventory and full-year’s capex 19 times over. They could stop all shipments, not make a single sale ever again, and still continue paying the expenses associated with the R&D and general operations of the company for a full 10 years by using the liquid resources they have built up.<\/p>\n
That, my friends, is a staggering amount of non-productive assets to keep on the balance sheet. Why is it not going into R&D, or capex, or aquisitions, or better yet, to dividends and buy-backs? If you knew all the intimate details about a business that was doubling every other year — because you are running it<\/em> — why would you ever choose to hold cash — so <\/em>much cash — instead of buying more of that business? So my spidey senses start tingling: are the assets listed in the financial statements really <\/em>there? <\/p>\n Is this <\/em>the next great Chinese stock fraud? <\/p>\n Now of course, you probably all know exactly which company I’m talking about. We all know the company <\/em>is real. The books are very likely<\/em> real. I’m not seriously suggesting otherwise.<\/strong> But I have to wonder if perhaps when you are looking at this company if one of the risk factors you write down on your analysis shouldn’t be “potentially the biggest stock fraud since Nortel, WorldCom, or Enron. Biggest ever<\/em>.”<\/p>\n Disclosure: no position. And yes, I am a little jelly.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" There is a company out there with the majority of its operations in China. It has had an incredible, unbelievable run in its stock price, up 400% from the bottom in 2009. This run has been supported by impressive sales numbers, growing the top-line (revenue) by better than 50% per year for several years running, […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,16],"tags":[],"_links":{"self":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1097"}],"collection":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1097"}],"version-history":[{"count":0,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=\/wp\/v2\/posts\/1097\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1097"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1097"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.holypotato.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1097"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}