While running the risk of making turning this into something akin to CNBC’s Squawk Box, here is an extremely short post. Basically, this is an answer to a question from a reader.
The question is essentially “So, what about West Holdings on a day like today?”.
Answer: The whole point of buying this was to get the pop due to the solar subsidy story in 2013. Obviously, growth from there will be more difficult. The valuation is already 12x next year’s earnings, and growth will likely slow from there. Eventually there will be severe overcapacity due to the subsidies. I was happy to take my meagre 80% profit. I think that there will be a lot of activity in the solar installations space in Japan, and they have a good positioning, but I am a little bit more worried about competition, and right now it is not clear how this will play out. And, if you remember the excitement about growth in German and Spanish installations until the subsidies changed, if you then consider that Japanese subsidies are extremely expensive, and that they do not have such a huge economic moat, then you will be somewhat cautious about the longer-term outlook.
{ 2 comments… read them below or add one }
Hi, I just read through your whole blog. It is a great read. I wondered if you have taken a look at Clip corp (a cram school), and BSP inc (a software company). I think that both have negative enterprise values, and high returns on invested capital. When determining roic, I use Greenblatt’s formula of:
ebit / (accounts receivable + inventory – accounts payable + gross property, plant, and equipment).
I have been using google translate to read the financials, so I am not completely certain of my numbers. As an aside, I came across Clip corp from a great writeup on the neat value blog.
I am mainly interested in companies with an Ev/ebit < 5 and roic greter than 20. Thanks again for the great blog!
Sincerely, Hugh
Hi, BSP inc is 3800 Osaka and Clip corp is 4705 Osaka.
Hugh