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nikhil090
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Quote nikhil090 Replybullet Topic: Operating profits vs. Asset play
    Posted: 06/Dec/2009 at 12:55pm
Hi all,

A theoretical question:

What should you do when you find a company whose mcap is significantly lower than the Net current assets on the books of the company.
Now there are 2-3 scenario:
1. The operating business just about breaks even
2. Strong operating business also besides strong assets on B/S
3. Operating business is negative but strong assets on B/S

The company seems a strong asset play but is it worth investing in hope that market may discover the worth of its assets over a period of time.

However let me clarify - I am not talking of a holding company..
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basant
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Quote basant Replybullet Posted: 06/Dec/2009 at 7:21pm
In case of 1. It makes sense to take a position for a person holding more then 15 stocks in case of 2. You mortgage your house and take a big bet in case of 3. The negative operating results can wipe off the assets so one has to be really sure of the business model or else a cheap stock can create bankrupt investors. Normally I would invest only in case 2.
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subu76
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Quote subu76 Replybullet Posted: 06/Dec/2009 at 8:19pm

I think HTML Global was one example of 2.....but then the market was speculating that the cash on balance sheet was fake.
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Quote dkarthick Replybullet Posted: 06/Dec/2009 at 8:55pm
another one is NITCO Ltd...

Edited by dkarthick - 06/Dec/2009 at 8:55pm
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nikhil090
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Quote nikhil090 Replybullet Posted: 06/Dec/2009 at 10:19pm
Originally posted by basant

In case of 1. It makes sense to take a position for a person holding more then 15 stocks in case of 2. You mortgage your house and take a big bet in case of 3. The negative operating results can wipe off the assets so one has to be really sure of the business model or else a cheap stock can create bankrupt investors. Normally I would invest only in case 2.


I agree with your assessment. However if the market is even somewhat efficient, case No 2 may really be difficult to find. It would be available only in extreme bearishness when there would be so many choices in any case.

Most probably it would be case 1 and 3 that would present themselves in case of Asset plays. Lets see if I can find something like that.
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Quote Circuit Replybullet Posted: 06/Dec/2009 at 5:17am
Originally posted by nikhil090

Hi all,

A theoretical question:

What should you do when you find a company whose mcap is significantly lower than the Net current assets on the books of the company.
Now there are 2-3 scenario:
1. The operating business just about breaks even
2. Strong operating business also besides strong assets on B/S
3. Operating business is negative but strong assets on B/S

The company seems a strong asset play but is it worth investing in hope that market may discover the worth of its assets over a period of time.

However let me clarify - I am not talking of a holding company..


I think MTNL is a classic case of [3]
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j2eeprofessiona
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Quote j2eeprofessiona Replybullet Posted: 06/Dec/2009 at 11:32am
Originally posted by nikhil090
2. Strong operating business also besides strong assets on B/S

[/QUOTE



B/S as in Balance sheet ?


B/S as in Balance sheet ?
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nikhil090
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Quote nikhil090 Replybullet Posted: 07/Dec/2009 at 12:02pm
yes sir
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