Let’s say you have plan to buy a house. If a property agent come
to see you and offer a house at the price of Rp400 million, while you know that
the market price of the house is only Rp300 million, will you take the offer?
Of course not. But how if the agent said because there are certain reason such
as the strategic location, building quality, etc, then the house will worth Rp500 million in one next year. Therefore, if you buy
the house at the price of Rp400 million, then you will get profit of Rp100 million. How’s that? Then you probably
started to be tempted to buy the house, although the price is more expensive
than it should be.
Pay attention to the bolded words: If you buy the house at the
price of Rp400 million, then you have
definitely release Rp100 million
(because you buy it at the higher price of Rp100 million from the market
price), but the fund will not necessarily return, and you won’t
necessarily get the profit of Rp100 million as promised, because we never know whether in the next
year, the house price will really reach Rp500 million or not. It could be the
increase in price is not even up to Rp400 million, isn’t it? So, your Rp100
million of fund is actually at stake
here.
In stock market, this practice happened frequently: You
get recommendation to purchase a stock at the price that is actually higher
than the fair price, because the company’s performance is said to be improved in the
future, so that high price seems
reasonable. In here, the risk that you bear is even greater, because the fund
of Rp400 million of yours will not only unlikely to increase to be Rp500
million as promised, but can even decrease. Because it’s different with the
property price that is unlikely to decline, the stock price can drop anytime.
Have you ever heard about news like this; Company A won the bid
worth of Rp1 trillion, Company B will acquire a coal mining company in Africa,
Company C targets an increase in net income amounted to 200% on 2011, Company D
will receive additional profit from the new project, and such. I believe the
answer is not just once, but often. Yes, when a company has poor or
unremarkable performance, then there is no other way for the company to make it
looks better, unless by releasing all sorts of promises to the investors.
Try to take a
look at the company that has solid
performance like Unilever (UNVR). Have they ever said all sorts news to the
public regarding their performance in the future? They don’t have to do that,
because without even saying, everybody knows they have excellent performance
and have very bright prospect.
The modus of this practice is actually simple and typical, it’s
always the same; the performance (that is said to be good) in the future is used to evaluate the reasonable price of the stock
today. For example, Company A recorded
EPS of Rp5 per share on First half 2010, while its stock price was Rp200. It means that the
Annualized PER was 20 times, aka pretty expensive (the average of PER in IDX is 10 - 12
times). So, after the Company A is rumored to won a certain project worth some
trillion of Rupiah, the net income is predicted to be soar, so its EPS on full
year 2010 (half year away from now) will reach Rp20 per share. If using the EPS
number of Rp20, then the stock price of Rp200 will generate 10 times of PER, aka
pretty cheap.
Usually, after the analysis using that ‘dreamy’ data is released
or distributed in the market, then the stock of Company A will rise, probably 5
or 10% or even 20% if the analysis is convincing, before then fall back.
For example is Bakrie Telecom (BTEL), which sometimes ago rumored
to do the synergy of Esia and Telkom’s Flexi, which was predicted to give great
benefit to BTEL. BTEL was also rumored would get additional income from Bakrie
Connectivity. Consequently, different from other B7’ members that slumped due
to the Bank Capital case, BTEL succeeded to increase from position of 140 to
170 (in average), before now it moves stagnantly in position of 150 (in
average). Why did BTEL move down back? It was because the fundamental wasn’t
strong enough, where its performance on first quarter 2010 was considered poor
(when this article was written, BTEL released its financial statement of the
first half 2010, and
the result is poor). BTEL might just
increase and not fall back if its performance on the first half 2010 shows
significant improvement.
Then how do we react to such information?
There’s actually no need to response negatively regarding the
information released by the company related to its performance improvement in
the future. That information indeed can be a chance for those who can play in
the short-term, because the stock in question is usually really went up, right?
Although it’s temporary. Take an example of BTEL. When BTEL was on the position
of 141, the company announced that they would do the synergy of Esia-Flexi, and
then the stock rose, until two weeks later and reached position of 172. If you
go in at the price of 141 and then go out at the price of 172, then you will
get gain of 22% only in two weeks.
But surely you do need to observe, which is the convincing
information, and which isn’t. Because, not all information released by the
company can jack up the stock price. Sometimes the stock price has already high when the news is released. That is why, for the short-term traders, an
ability to assess the level of significance of an information (whether it’s
reasonable or not), become an absolute requirement, so that you will be able to
achieve great gain in a short time.
Note: as mentioned above, an increase of certain stock due to such
information (if the rumor sounds convincing) is usually temporary. The stock will immediately fall back after the rumor
forgotten over time, particularly if the fundamental is weak (shown in the
latest financial statement). And usually it will only last until 1 or 2 months, or shorter. Besides BTEL, another quite phenomenal example is BHIT. So, don’t
ever use the news such as: ‘The company targets net income of some hundreds billion on 2011
after acquire oil field in the Arctic Pole’, as your guidance to purchase the
stock and hold it until 2011. Trust me, it’s just a waste of time, and probably
your money too.
No comments:
Post a Comment