I have started with series “Once a darling, now an evil“ is based on the companies which were once upon a time darling of the market and now, it has wiped out the majority of all those gains. This series has received lots of love and recognition. Majority of readers of the series has demanded current darling which can have the potential to become evil. I cannot refuse the request of all loyal readers who keeps on encouraging me. So, on an auspicious day, I am going to start with this new series with all your love and wishes. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth. I wish this series “Current temptation, Future frustration” also receive all your love and recognition.
I am starting this series with one of the company which is engaged in the business of high-end speciality chemicals, has a 52 weeks low price of Rs.0.95 and LTP is Rs.9.90. This company has rewarded ~10.42x of return in a year.
This company at least earns revenue. 😉 But revenue not growing and even going down year-on-year. Let’s look further because at the lowest price the company traded at Mcap/sales of ~0.15x.
It’s not time to get happy by just looking at the revenue. When we look at the balance sheet then we noticed that the company has higher receivables and inventories.
Receivable and inventory as a % of sales continuously growing with stable payable which will worsen cash flow from operating activities of the company.
Wow…. Let’s drive Volvo and Jaguar with the money of shareholders (the majority of shareholders are very busy and does not have time to look at this).
Advances to suppliers but still confirmation is pending (who will read it and check it, let’s play the game).
Similar to the receivable’s products got sold but they are receivable or not they need to confirm. Wow….
There are lots of related party transactions which can create doubt.
Promoters of the company also reducing stake from the company.
This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.
Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.