Out of favor is one thing but I would urge everyone to check and do the proper due diligence. The risks of catching a falling knifes are high. As I mentioned to everyone previously about certain dubious companies like Hongwei, Gaoxian and Eratat, 2 of them have already have issues.
I think the most important thing is forget about the numbers first and look at past trasactions and corporate actions and ask yourself, does it make sense?
Next, check the story of the company and see the numbers if it ties in with the story.
I doubt Eratat has issues - just a hunch and only time will tell. Eratat has attracted investors to take up recent placement and prior to that I hear that CMIA did a very thorough due diligence over 2 or 3 months before it decided to take up new shares. Anyway, Eratat stock is going nowhere - which is the sad part because it is a deep value stock. Will sitting on it for another 6 months make a difference?
For a investment as such, one should not rely too much on hunches or gut feel.
Where a significant risks of permanent capital impairment exists, it warrants a closer, in depth analysis of the company. And no, having PE firms that does due diligence does not count as a proper analysis done by the investor.
There have been several cases of PE firms doing due diligence for months and years and still end up badly charred by the investments. And I am not talking about local PE firms like CMIA but the global billion dollar ones.
Theres 2 level of looking at this firm.
1) Firm management is not wise in corporate actions and is reducing shareholder value, and/or
2) There may be some existence of dishonesty in dealings
Personally I have done some analysis and track the management rather loosely. (To me, there is further upside of digging deeper). And I have written it my blog below.
skewed-odds.blogspot.com/2011/04/koon-up...other-ramblings.html
To say its a deep value play, I think it is still early to say, even for the enterprising investor.
Last edit: 13 years 6 months ago by jinraidx. Reason: Shorten the prose
Global stocks staged the biggest rally of 2011 and the Dow Jones Industrial Average reached an almost three-year high amid better-than-estimated results at companies from Intel Corp. to United Technologies Corp. and L’Oreal SA. Gold jumped to a record as the dollar slid.
I agree with jinraidx who probably has not lost a major amt of money. This is better than making big and losing big with a net gain of a small amount and not knowing if the next tsunami will wipe you off from the face of the earth.
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