Hongguo’s Fundamental & Intrinsic Value

Base on Q2, 2009 financial report:

  • PE = 5.8
  • Dividend Yield = 4.3%
  • NAV = $0.3438
  • Net Earning = 7.8% (12% in 2008)
  • Current Ratio = 3.72
  • ROA = 13.6% (Base on 2008 Full Year)
  • ROE = 18.5% (base on 2008 Full Year)
  • Cash Flow = S$46.3Million (103% increase with reference to 2008 Full Year)

 Stock Background 

  • 3 years historal high = $1.46
  • Current Price = $0.31 (only 21% of 3 years high)

 Intrinsic Value Calculation 

  • EPS Annual Growth = 12% (from 2004A to 2009F)
  • Discount Rate = 5%
  • Intrinsic Value = $0.73 (58% Discount of Current Price to Intrinsic Value)

Hongguo – breaking out from triangle soon but where is the direction?

Hongguo is going to breakout from a triangle but no clear indication where the stock price will go after the breakout. The minor up trend may not be sustainable because it is showing volume price divergence. Need to see where the next few candles go and whether it has enough volumn to support the trend.

Don’t chase the price!

A lesson I’ve learnt recently is not to chase the price no matter what the technical indicators showed. I chased the price of Hongguo at $0.34 (at the top) when I saw all Standard Six indicators showed bullish convergence, however the price retraced back to $0.27 within one week. Currently I am still at lost with Hongguo’s $0.31 today with thin trading volume. I will probably hold the stock for a longer term and wait to reach the my calculated intrinsic value of $0.85 (calculated before the recent Q2 2009 financil result).

The hardest part of the stock trading is to control the emotion, however I was able to control my emotion by delaying the action by one part after seeing Synear breakout from its triangle. I was very tempted to enter the trade at $0.285 but I kept reminding myself not to chase the price. Eventually I was able to enter at $0.275 and today Synear closed at $0.305, a handsomely 9% paper gain in one day!

Today I almost go to chase China HongXing stock price at $0.215 before the market close. Fortunately I was disciplined enough to wait for another day. Base on the candle sticks, the stock price failed to break the resistance and would probably retrace back to between $0.18 to $0.20. This gave me another opportunity to buy on a dip.

Lesson Learnt: It is OK to make mistakes but must learn how to prevent making the same mistake for the second time.