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2:05 pm
January 18, 2012
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Jae Jun
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I could have definitely shown more warnings signs though. I just didn't have my tools on hand to do it quickly.
Here are additional points to look at to see quality
- revenue vs inventory vs receivables growth
- inventory analysis
- working capital assessment such as DPO, DSO, inventory turnover
These three alone will filter out the horrible from the decent.
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1:53 pm
January 18, 2012
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Graeme
| | Austin, Texas | |
| Member | posts 180 |
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This is a really helpful post. I find it really helpful to look at crap companies with crap financials if only that it'll help you know a good thing when it hits you. It's like drinking crappy beer your whole life and then one day someone puts a handcrafted local ale in your hands and the world changes…
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1:31 pm
January 16, 2012
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Jae Jun
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Founded in 1983, OCC manufactures fiber optic and copper data communication cabling and
connectivity products.
Why is it Cheap?
- Just taking a brief look at the financial statements, you can see how horrible this company is. I'll just list quick points for valuation. No need to go through in detail.
Valuation
- Top line is barely profitable.
- Receivables make up 25% of total assets
- Inventories make up 36% of total assets
- Cash has dropped by more than 50% in 6 months
- Intangible assets dropping quickly. Can only mean that acquired companies are not worth what they paid.
- Accounts payable has increased to 11%
- Long term debt is 20% of total liabilities
- Thin margins which travel all the way down to the bottom line. FCF is erratic and borderline 0 or negative.
- CROIC is in the low single digits except for a couple of uncharacteristically high CROIC which messes the average. Best to take the CROIC average as around 4%. ROE and ROA equally low. No way that this company can generate returns exceeding cost of capital.
- Only thing going for the company valuation wise is P/B ratio, but even the book value is made up of receivables and inventory. Very low quality book value.
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