There was once I had a friend who was a broker, who loved to play contra on stocks. As you all should know, the only 2 stock exchanges in the world that allows contra trading, Singapore and Malaysia. As the SGX continues to look into banning contra trading, I believe brokers are right now shivering in their pants, hoping SGX does not follow through on the ban.
Why did I bring up my friend who loves contra trading? He is one hell of a character and the way he lives his life is one which I admire but know can never achieve. I remember an occasion when he bought a stock in huge amounts and lost a substantial amount of money within the contra period. He was having lunch with me and he said that he got killed by Sarin gas (the japanese terrorist act in their subway? Just in case you did not get the pun). I guess you all can get the hint and now know the stock I am referring to.
Before I get started, I would like to say that this is not the usual value investment recommendation. It is more like a stock that falls into the momentum critical mass theory which I have introduced in my previous post last week. Luye and Hong Leong Asia were the other 2 stocks which I said fell into this category, I would now like add Sarin into the list.
Sarin Technologies is a worldwide leader in the development and manufacturing of advanced planning, evaluation, and measurement systems for diamond grading & gemstone production. Sarin products include diamond cut grading tools (for round and fancy shapes), rough diamond optimization systems, gemology tools, diamond color grading, and laser marking machines. Sarin systems have become an essential tool in every gemology laboratory and manufacturing plant, and a must for diamond dealers and retailers who need accurate diamond grading.
This company was listed on the 8th of April 2005, to my closest friend out there, it was listed on your birthday, think its time you bought this stock. Ok I just want to say that the stock has run up almost 50% ytd. From $0.35 to $0.51, it has had an impressive run.
So why did the stock have such a strong run up over the past few weeks? First of all, the results showed a huge jump year on year for the 4th quarter. Earnings per share for the 4th quarter 2009 alone was US$0.0171 which dragged the whole 2009's profit into positive US$0.0058. I know this does not look like a whole of money, but the turnaround is sharp and it is the first time in the past 2 years where the company has shown a turnaround. During the better years, the company averaged earnings of US$0.03 which is almost S$0.04. If this turnaround is sustainable, the current price only reflects 12 times p/e. Its cash levels are more than enough to pay off all its liabilities. Cashflows from operations are strong.
Why do I like it? Even though it does not fall into the extremely undervalued category, but Warren Buffett did say that a good company is not just about the valuation, its growth prospects and competitive advantage is also very important. Sarin has been a market leader in its field for a long time, its leading position is one that must be valued in such a niche market. Margins are huge at 40%, and I am talking about net margins here.
Recently, the company has announced their new technology will be adopted by the biggest miner in the world, BHP Billiton. The Galaxy 1000 will allow rough diamond suppliers to scan their rough diamonds and immediately gauge the flaw of the diamond and where the intrusions are. For a rough diamond supplier like BHP, this will allow them to get better prices and also make fewer mistakes when supplying the rough diamonds to diamond cutters and polishers. If BHP takes it up, you can expect this technology to be adopted by many more miners out there. If it can gain critical mass with its technology, it will reinforce their position as market leaders in the diamond technology industry.
Why does it fall into the momentum critical mass theory? As I have said, I believe that the positive announcements for this company will continue flowing and it will cause the stock to re-rate upwards. Before the analysts start scrambling to cover this stock, it will be good to buy some and keep. Hint Hint.
Happy trading this week!
Best,
SVI
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