Wednesday, June 18, 2008

It can't drop further

I was chatting with a colleague over at MSN when he happily told me that he had bought China New Town at $0.16 today. Apparently, he was extremely bullish on this stock.

His reason? It had dropped over 80% since it's IPO and he believes it is high time for it to rebound. Most importantly, he happily told me: "I don't think it can drop further."

Well, I can't bear to tell him that almost any stock at a given price can drop another 99% before it reaches $0.005.

Why is China New Town (CNT) sinking like nobody's business? I believe it has go to do with it's fundamentals.

Or rather, the lack of it.

CNT FY 07 reported a turnover of RMB$363m. Not a bad figure, except that profits after expenditure is a loss of RMB$290m.

No dividend was declared (obviously).

Basically it's selling point is still the sexy story it sold during its IPO. I caution my readers to be careful about buying such speculative stocks.

Again, you will have a better chance putting your money on Croatia (against Turkey).

In fact, I am worried that my colleague actually makes money from CNT. It will foster his belief that stocks that have sinked more than 80% is a good deal. I hope he did not have to pay much to understand investment basics!

3 comments:

jeflin said...

From what I know, the company has announced a proposed bond buyback. But the market sentiment doesn't seem to be too optimistic on this news.

Sgbluechip said...

The money used for bond buy back might be borrowed from banks thus increasing it's leverage. The interest rate in China is high enough. I do not see any strategic logic on proposing a bond buy back at current interest rate environment.

la papillion said...

Hi,

Hoho, cheap need not be good :) I had my share of IPO fever, though I had never had the fortune to get any lots during balloting, haha!

As such, I never bothered about IPO anymore :)