I was looking at the unloved stocks screen and noticed LSIC and had a look a bit further...
Stock rank of 90 which I like,
Has net cash and other metrics I favour look good,
But
Foreign company listed on aim and earnings manipulation risk red flag
Feels like a story stock with management teasing in statements about a possible sale or listing on Nasdaq.
Often I'm looking for a reason not to buy rather a compelling reason to buy, so someone help talk me out of it please. Why wouldn't you buy this stock?
Is it really an under the radar discovery or is that just the monkey in my head talking?
Hey there mate. Off the top of my head, yeah I agree with you. Looking at the Beamish score the three areas of suspicion~
Asset Quality- With healthcare companies... if viewing in comparison to the health care sector all tend to have a worrying asset quality score. Generally large number of patents as noncurrent assets tend to be the cause of this, to the best of my knowledge.
As for total accrual to total assets, the formula itself is non-inclusive of cash minus depreciation. So unless it's an outright lie then the company's cash position should be as strong as reported... but that is 100% off the top of my own head.
Sales to expenses increasing at a disproportionate amount... the company itself has recently expanded into brazil & China, and works through distributors so I imagine costs would not be as volatile or as closely correlated to sales. Although I wouldn't be 100% convinced by this argument as frankly it could just as easily be argued that the expansion into emerging markets should entail major increased expenses. CAPEX requirements have increased but only marginally.
Personally off the whole company I'd still be suspicious but, but with the downside vs upside (since it's such a small cap stock) I would & am considering placing a small stake in the company.
I believe if you take a comparison to other companies in the sector the majority of those identified by the manipulations risk score are patent heavy companies and pharma/healthcare stocks, as their means of distributions & advertisement (expenses) is essentially through the original research and clinical trials and publications which is a one-of up front cost. Hence the reason i believe the SGA score & asset scores are usually 'risky' in a healthcare stock. As for the total accruals to assets that is the only one I cant really come up with a concrete idea for.
I believe if you subtracted all the intangible assets, ensured the operating to cash position was more or less correlated and still came up with a favourable figure then a long is frankly a good idea. Unless the company is outright lying, which could always be the case. I'm interested to see what they say in their June statement.
Anybody else got any ideas?
Maybe question the score in the main forums as it's own subject and see what people come up with.
