When Stocks Go Bad: Grim Tales from the SCVR

Saturday, Mar 02 2019 by
113

Following up my question about popular stocks from the SCVR that had performed badly (https://www.stockopedia.com/content/small-cap-value-report-fri-1-march-2019-duke-rbg-rmv-453208/) I went and did a bit of digging. It's a thoroughly unscientific study which has cherrypicked its examples, and no doubt I've missed a few but I'm really just interested to see if there are any principles we can dig out. So, let's have a look:

Revolution Bars (LON:RBG) – essentially this is just a car crash of a stock with poor management combining with an awful environment for restaurants. The lousy situation on the High Street is well known, so investing in this at any time over the past year has looked like a bet on someone buying it. You could have paid 167p for this in January last year and would now be nursing a loss of over 60%. There was a break point – the trading update on June 14th was a warning, and that would have allowed an exit at around 136p.

Verdict: just an awful sector of the market, looks like a lot of investors anchored on the 200p bid price from Stonegate in 2017 and have failed to adjust their mental models.

Keywords Studios (LON:KWS) – I held this until the middle of last summer (no skill in selling, I just dumped everything before I went on a long holiday). I viewed it as a pure momentum play, buoyed up by uninformed investors bidding up the stock. It reached 2000p at its peak – but that gave you a PE of 40 and P/FCF of 147 on some distinctly average quality metrics! Since then anyone holding has lost 40% of their investment. All momentum based investments are prone to corrections when the market moves against you, and that’s what happened in October – anyone acting smartly might have got out at about 1500p. But it was also inherently risky – it could have run into issues with one of its many acquisitions and is in a rapidly changing sector where trends such as Fortnite can completely change the market economics.

Verdict: it was overpriced and therefore subject to a market correction. If you believe cashflow is king (I do) it still looks expensive.

Purplebricks (LON:PURP) – you could have bought this at over 400p last February, anyone holding until now has seen a 70% drawdown. It’s blue sky stock (no profits, sod all cashflow), so investing in this has always been about faith rather than reason. The first selling opportunity was back in February '18 when Jeffries published a critical research report and there was another opportunity around 280p at the end of March when they issued new shares and gave a profit warning. On top of that they’re expanding internationally, and running into problems and have recently released both UK and US CEOs. To lose one CEO is unfortunate, but lose two seems careless. And it’s burning through cash faster than Imelda Marcos in a shoe shop.

Verdict: ridiculously overpriced stock at its peak, trading on an unproven business model which, even if it worked, was vulnerable to disruption by someone undercutting them. It’s a “story” stock – it tells a story that it’s easy to believe, but has no numbers to back it up.

IQE (LON:IQE) – now down about 40% from its peak last year in March, but that’s up nearly 40% from the bottom in November. This is much more difficult to value than some of the others on this list – their technology is genuine and is targeting real growth areas of the market. I held this briefly last year, but decided that the involvement with Apple was a poisoned chalice – Apple won’t let itself be constrained by suppliers, will force over-production and will attempt to sponsor competition. A red flag for me is when posters start back up their convictions with incredibly detailed analysis of why the story will come true: that’s over-analysis and suggests commitment bias kicking in. Let’s face it, all stories are subject to the unpredictability of the future.

Verdict: it’s a story stock, albeit one with a believable narrative. However, it has no free cashflow and to invest in this you have to believe in the story. Although I’m inclined to think IQE will be a relative success I’m not convinced it will ever be able to exert pricing pressure.

accesso Technology (LON:ACSO) – I held this for over 5 years before selling in the general clear out last year. That proved fortuitous – the current share price is 70% down on last year’s peak. The main problem here – again – is lack of cashflow. That’s true at the operating level as well as after capex – they just don’t generate a lot of cash. As with Keyword there doesn’t appear to have been a particular trigger other than the market selloff in October last year causing investors to become more risk adverse. There was a point at which accesso was a proper early stage investment with funding, technology and customers, but it appears that its theme park customers have control over its pricing, and it’ll need to change that to start making money.

Verdict: Again it was overpriced – it just doesn’t make much money. With hindsight anything with poor cash generation should have been dumped at the first sign of a market downturn. Perhaps the lesson here is to continually revisit our beliefs – I suspect I would have held accesso through the downturn because of long term attachment to the stock.

Amino Technologies (LON:AMO) – another I held until last year. It’s fallen from 211p to 85p, that’s a 60% fall. The main trigger was a profit warning on October 8th, coinciding with the market fall. You could have got out around 140p on the day, so the sell on a warning policy holds true here. Recent PBT was down a quarter, and the headwinds – basically customers cutting costs – are likely to continue. As a result they’re moving out of hardware (settop boxes and the like) and focusing on software and services. The company looked fair value back in October and continues to look so today, although I wouldn’t touch this until we see how that transition works out.

Verdict: It looked fair value back in October, but if investors had bailed on the profit warning they’d have saved themselves 40% losses from there.

Flowtech Fluidpower (LON:FLO) – and another former holding. It’s “only” dropped 30% from its peak – triggered by a mild profit warning back in September. I’m not convinced the cashflow forecasts for this year are right, but generally it looks cheap – although it didn’t look at all expensive back in September either. Perhaps the main concern here is that it’s acquisitive, so the number of shares in issue keep creeping up.

Verdict: cheap in September, cheaper now. Selling on the profit warning wouldn’t have hurt but the price has barely moved since. But the first one on this list I’d remotely consider buying right now.

Gear4Music (LON:G4M) – a stonking 70% + drawdown since last summer. The big trigger being a profit warning on Jan 4 – investors could have got out above 240p on the day, compared to 195p at present. It’s another story stock, it has significant negative free cashflow and even now looks expensive. Prior to the warning it was trading on a PE of over 40. Leaving aside whether you believe the story or not – it’s just the internet platform as a disruptor meme – stocks with those kinds of financial are always vulnerable to rapid price collapses if they miss targets.

Verdict: Another story stock gone wrong. It may yet prove to be the digital disruptor it’s proponents hope for, but why take the risk?

Fevertree Drinks (LON:FEVR) – down 30% from its peak (it was over 45% down at one point). As far as I can tell there’ve been no negative announcements so this is simply the market reacting to the realisation of the risks associated with the share price. It’s a terrific business, growing at pace, but it was trading on a PE of nearly 70 last September and even now its free cashflow is miniscule compared to market cap. It could, possibly, grow into its valuation but it’s hugely vulnerable to missing its figures and investors could wake up to one morning to a significant loss, even from this reduced level.

Verdict: Another story stock, but one with a real story. However, it was massively overpriced at its peak and remains vulnerable to any missteps. It’s classic case of people overpaying for growth.

Restaurant (LON:RTN) – well, see above on Revolution. Down 48% from its peak last year and much more from its previous peak in 2016, when it got clobbered by a profit warning. Like many largely undifferentiated restaurant chains its profits have been slipping and its response has been a rights issue to buy Wagamama at what looks a full price. The announcement of that was the trigger for the start of the share price decline. Investors probably should have sold on the announcement, the Wagamama price looks very full, even if it is a decent company.

Verdict: As with Revolution I just don’t see this a sector worth playing in, too many variables.

Plus500 (LON:PLUS) – ouch, that’s a chart to make a grown investor weep. Currently down 60%, most of it a couple of weeks ago on a profit warning plus confusion (or perhaps clarity) over their trading profits / losses. Plus has been a Marmite stock for ages, but the massive director share sales last year, coupled with historical concerns over their approach to regulation, the Israeli domicile, the high turnover of clients along with the new ESMA regulations and their astonishingly high ROCE compared to competitors were all warning signs. Far too soon to judge how this will play out, but businesses in highly regulated industries really need to avoid making basic mistakes in their reporting.

Verdict: It was clearly high risk on many counts, and the market was signalling this. Its corporate governance looks weak.

XLMedia (LON:XLM) – Double ouch, down 75% since the beginning of 2018. It raised cash at the beginning of last year and then had a profit warning in June, which dropped the price to about 110p. Holders would have been well advised to get out then. XLM lacks transparency in what it does (although that could be my stupidity), is an area where regulators are taking a keen interest (e.g. GDPR) and its corporate governance looks weak – Israeli company registered in Jersey (like PLUS). We’ve just had a second profit warning taking the price to its current level.

Verdict: Similar to PLUS – it's never looked expensive, but it's never generated much cash either. Throw in the governance issues and I’d not want to play here, other than in the short term.

Taptica International (LON:TAP) – Let, see ... another Israeli company, in a similar area to XLM. So how do we think this has gone? It was trading at 475p in January 2018, now at 165p, so a mere 66% drawdown. There was a fundraising in Jan ’18 (a theme emerging here) and then the price drifted down until December when it fell on the news that the CEO was forced out due to irregularities at a company he used to head. It’s also recently announced it’s buying RhythmOne in a highly dilutive takeover and produced what looks like a thinly veiled profit warning.

Verdict: See PLUS and XLM above. It’s an area that’s increasingly sensitive, especially given the issues at Facebook. I’d expect much more regulation and in that environment it's usually the companies with the best governance that succeed.

XP Power (LON:XPP) – hmm, I actually do hold this one. It’s fallen 45%. Its price at the peak looked ahead of the numbers but wasn’t too bad – the PE was under 20 but FCF was declining, as it’s relatively capital intensive at times. There doesn’t seem to be any specific reason for the fall other than general market concerns of softening demand and the fact it’s made a couple of fairly sizeable acquisitions. At the moment it looks cheap-ish, although I’d like to see the finals (which are due any time now) before making a top-up. Note that it’s actually a Singapore based company, and there have been a succession of corporate governance scandals there, so that could be a contributory factor.

Verdict: Looks like a decent company, price got ahead of itself, it’s taken on more debt for acquisitions and the market is weakening. Current predictions for this year is that FCF won’t cover the dividend, so that needs to reverse pdq.

Air Partner (LON:AIR) – another bullet dodged, but I don’t think anyone could have seen this coming. It’s a 43% fall to date, and was triggered by accounting irregularities. It leaves a bit of a concern over the management, even if the CFO has been ceremonially dispatched. Here we move into the area of Patisserie Holdings (LON:CAKE) and Staffline (LON:STAF) - I don't even want to go near those. However, when markets turn down after a long bull run you quite often get accounting issues coming home to roost.

Verdict: Hard to see much anyone could have done on this. Generally it's a lesson in diversification, never put more in a single stock than you can afford to lose, unless you're Warren Buffett.

Overall it's a messy and nasty picture - those are 15 stocks, all of which have featured multiple times on the SCVR and which have all suffered shocking falls. It's not a scientific study, and I've no doubt missed a few. There are a few decent stocks in there like Flowtech Fluidpower (LON:FLO) and XP Power (LON:XPP) where I'd guess the loss of capital isn't permanent and others like Fevertree Drinks (LON:FEVR) and IQE (LON:IQE) that may go on to do OK. But there's a good chance anyone buying at the peak with a lot of these could be waiting a long time to recover their cash.

General themes? Well, lots of story stocks with lousy cashflow, some general concerns about governance, quite a lot of equity raises in advance of later price falls and some sector specific issues - High Street restaurants have been a lousy place to invest. The unforgiving nature of the bear market in response to bad news is an important point to consider: perhaps investors got used to the market ignoring bad news in favour of the story. However, in normal markets stocks on high valuations - anything over a PE of 20 as a maximum - get mangled if they miss expectations. And that's what we're seeing.

Hindsight is a wonderful thing - no one could have predicted this a year ago. However, I think a lot of us knew that the bull market was built on sand, and it's never a good idea to overpay for growth shares. But people love a story, we just can't help ourselves.

Oh - and profit warnings ... Restaurant, Purplebricks, Amino, Gear4Music, Revolution and XL Media all produced warnings that were tradeable. Anyone selling on those would have saved themselves significant losses. So far the Stocko research - sell on the first profit warning - holds up. Certainly I always do, these days.


Filed Under: Stock Picks,

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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22 Posts on this Thread show/hide all

AnonymousUser605348 2nd Mar 3 of 22
1

Great article. Plus 500 is a dog. How can price go down so much and p/b, p/tb still be so high? All of that and the books might be cooked anyway.

If one were to play the "regs won't hurt too bad" trade, maybe CMC (LON:CMCX)?

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Edward John Canham 3rd Mar 4 of 22
5

Thanks for your efforts Timarr - very thought provoking.

Amino Technologies (LON:AMO) fell into the serial disappointer classification for me - continually promising a better H2 or an uptick in the next year. I think this might have been a warning prior to the actual profit warning(s) - personally haven't thought it was good value for a couple of years due to falling turnover on a six monthly basis.

Having been caught up in a couple of the ones you mention I would wholeheartedly agree with sell on first profit warning.
1) It has definitely saved me money.
2) I feel better after doing it - don't have to worry about that anymore, what opportunities have I got to get my money back. (OK the cat is in severe danger for the first couple of hours after).

"Difficult to implement due to real loss (instead of paper loss)." I've never understood the concept of a paper loss which many still seem to cling to. Paper losses are actually real losses - shares are a millimeter away from cash in liquidity terms so why differentiate. (I'm just as annoyed with myself when I don't take profits when logically I should have done.) Finally as Timarr's article indicates life events happen which force liquidation - even the pleasant ones like taking a long holiday.

Thanks again Timarr

Phil

(PS I agree Flowtech Fluidpower (LON:FLO) and XP Power (LON:XPP) are potentially interesting, but am awaiting next set of figures in both cases before jumping. I'd like clarification on the net outflow of cash from XP Power (LON:XPP) I note Y/E net debt of £53m per the TU. Flowtech Fluidpower (LON:FLO) needs to demonstrate cost synergies are being realised. )

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LongValue 4th Mar 5 of 22
3

A really useful survey of stocks that have performed poorly in recent times. What I found striking was the range of sectors and business models. And they have been impacted by a variety of factors from possible fraud to accounting irregularities and even the macro-economic environment. Two of those covered, XP Power (LON:XPP) and Air Partner (LON:AIR), are companies that I have invested in and profited from in the past. But I had no idea that their stocks would be at the levels they are today. It does drive home the unpredictability of corporate performance.

As you point out, diversification and not investing more than one can afford to lose in a single stock seems to be the way to go. Unless, of course, you truly believe that you are a Warren Buffett.

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Graham Ford 4th Mar 6 of 22
12

It is frightening looking at ADVFN and reading comments from posters describing how exposed they are to some of these story stocks with often a high percentage of their holding in just one or two of these.

I think that it is a case of win big lose big with these stocks and so diversification is absolutely necessary unless you really have a talent for identifying those stocks that are going to soar and getting out before they fall back down to earth.

I think many investors some how believe they have the talent to run a highly concentrated portfolio like Paul’s BMUS portfolio, when there are few who manage it successfully. Even then I hope Paul would agree that if Sosandar goes wrong the BMUS portfolio is in for a very rough time. He has the confidence to have an enormous amount of Sosandar in there because he is a specialist in that sector and knows the management very well. But for the rest of us perhaps it is worth remembering the old saying.......”Don’t try this at home folks!”


Confession time: still holding a fair bit of IQE (5G and shorts closing are now bringing the price back up), and a very small amount of Taptica and XP Power.

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back2value 4th Mar 7 of 22
2

Great commentary - thanks. I would comment, though, the variety and quality of the companies listed demonstrates that the sell-off has been fairly indiscriminate. XPP and Air Partner were great performers for me but are now both back close to the prices at which I bought, but I still hold them because I don't believe that their fundamentals have really changed. I managed to buy Flowtech just before its SP got - in my view, unreasonably - smashed on what was a pretty mild profit warning, and IQE is the only one of these I've ditched.


The only share that I own which has really held its value though all of this has been Watkin Jones. A great performer.


B2V

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timarr 4th Mar 8 of 22
10

In reply to post #454553

Hi B2V

I would comment, though, the variety and quality of the companies listed demonstrates that the sell-off has been fairly indiscriminate.

I get that, but the selections are cherrypicked and I don't think they necessarily prove that point. After all you can find popular companies that haven't been seriously impacted by the selloff - Burford Capital (LON:BUR) or Ab Dynamics (LON:ABDP) or Bioventix (LON:BVXP) or (as you point out) Watkin Jones (LON:WJG) - all of which I also sold last summer. If the selloff was entirely indiscriminate then they would be struggling as well.

Having mulled it over a few themes occur to me:

  • Cashflow is critical: as Phil points out even XP Power (LON:XPP) has some issues and Flowtech Fluidpower (LON:FLO) looks weak. Air Partner (LON:AIR) is better, but accounting concerns should rightly depress the price for some time to come;
  • Governance matters: it's very easy to ignore worries about the reliability of management when markets are rising, but worrying about whether they're mainly out for self enrichment is always sensible;
  • Customers are key: no matter how good the company is, you can't make money if you can't exert pricing pressure: I think a lot of blue sky stock investors miss this point;
  • Valuation will ultimately determine returns: buying a growth stock at 40x earnings will usually turn out to be a worse decision than buying a value stock at 8x earnings.

Perhaps the main lesson is that when the market turns then momentum driven stocks get hammered if they put a foot wrong. True momentum investors would bail when the market turns down but pseudo momentum followers - including people like myself who are simply following the trend - are likely to get caught out.

I suppose the joy of investing is that you never stop learning ...

timarr

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millen 4th Mar 9 of 22
1

In reply to post #454553

Couldn't agree more! Though I sense that in many cases their 'portfolio' is only a small part of their overall financial assets which are more conservatively invested. That said, there's one guy who says the recent rise in IQE has covered 7x his annual pension contribution. He sounds well switched-on though.

Part of the blame I feel is the focus on stocks in the 'AIM casino' as TW calls it. Over the past 12 months the AIM indices are down around 11% compared with near-flat performance for the FT100-AllShare. I don't understand this bias when all the professional websites promote the benefits of decent diversification (including having well under 50% in one's home country market). Possibly it's because people think AIM stocks are simple to understand relative to 'complex' bigger stocks? Also there's a horrible tendency, even on Stockopedia, to think that because we, as a consumer, can sample a specific B2C outlet for example, we somehow acquire a higher insight into its investment merits.

Possibly there's a case for an updated thoughtpiece on diversification? I heard a US podcast (Meb Faber?) last week which again made the point that if you see a 25% idiosyncratic and unforeseen fall as quite plausible you really don't shouldn't hold more than 4% of your portfolio in one share.

Also, it would be useful to shares thoughts on what's a sensible upper limit for a public shareholding. For my part, going above 1.5x annual regular expenditure gives me the heebeegeebies. (I've held more in private companies but there at least you can't check the shareprice daily! Also some employers might expect you to hold a significant amount in company stock, especially US-owned entities.)

It would also be instructive if the major retail brokers could be persuaded to release analyses on the level of diversification etc of their significant clients' holdings. Perhaps they do?

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timarr 5th Mar 10 of 22
6

In reply to post #454568

Part of the blame I feel is the focus on stocks in the 'AIM casino' as TW calls it.

I suspect that there are three reasons - IHT relief, a preference for lottery-like returns among naive investors and a preponderance of growth stocks on AIM.

On IHT relief there are a few articles around suggesting that some of the inflated prices achieved by quality AIM stocks are the result of a crowded trade. There are quite a few AIM Business Property Relief funds around and if they're all chasing the same relatively small pool of AIM companies that'll push the prices up. For instance, XLMedia (LON:XLM) is in the AIM 100 and only has a market cap of just of £100 million so a bit of concentrated fund buying could make a noticeable difference.

People also tend to be attracted to lottery-like returns. It's actually the other side of the low-volatility anomaly, the finding that low-beta portfolios outperform. Lottery-like stocks, where there's a small chance of a huge win, have the opposite characteristics. As to why people buy these things, I guess that's the same question as to why do people buy lottery tickets?

And finally, AIM is really an early stage market for potentially high growth stocks. In a momentum market driven by stories about growth it's perhaps unsurprising that private investors disproportionately focus on it.

Also there's a horrible tendency, even on Stockopedia, to think that because we, as a consumer, can sample a specific B2C outlet for example, we somehow acquire a higher insight into its investment merits.

Completely agree. It's absurd, but it's very hard to convince people that their personal experience doesn't outweigh the data. And sometimes it does. Just not very often.

timarr

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Edward John Canham 5th Mar 11 of 22
5

Guess we could've added Bilby (LON:BILB) - now on its second profit warning.

?? Lesson: a founder selling up is a big potential red flag, even if those shares are bought by quite highly respected institutions. What they paid for those shares is close to the entire MV of Bilby (LON:BILB) now.

I would also add that you never knew when Bilby (LON:BILB) were going to produce their results (one set coming out at about 3pm going from memory) . They also missed opportunities to communicate with the market when perhaps this could have been expected, for example an AGM statement following the founder sale.

Phil

No holding

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jonno 5th Mar 12 of 22
3

Hi Timarr

Great post and some really interesting and informed contributions from Stocko members.

My only recent faux pas (fingers crossed) was the purchase of Walker Greenbank (LON:WGB) post the initial profit warning last summer. However the company then issued a statement that trading had picked up which prompted my purchase Unfortunately trading continued to decline thereafter.

My view was and still is that there is value in the company's brands that is not reflected in the share price. Walker Greenbank (LON:WGB) is debt free and ROCE and free cash flow are currently more that acceptable, however with declining earnings and challenging markets it is difficult to see any upside for the share price, excepting a bid, which wouldn't surprise me. So I sold after the interims at a 20% loss on the basis that I could put the money to better use elsewhere.

Other confessions are that I continue to hold Flowtech Fluidpower (LON:FLO) as I view it as undervalued, although the increased debt is a concern. I also have long term holdings in Elegant Hotels (LON:EHG) and ITV (LON:ITV) (my only large cap), both of which I view as undervalued and financially robust. Both pay good dividends and are potential bid candidates (thrown in for free). I am down between 20% and 30% on these three holdings, but fortunately the rest of the portfolio has pulled its weight.

I avoid Israeli tech companies as from my viewpoint they fall pretty much in the same ball park as UK listed Chinese stocks in terms of corporate governance, robustness of accounting etc.

All the best

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psin 6th Mar 13 of 22

In reply to post #454563

Timarr
Governance matters: Skin in the game every time.

Excellent article. How we DO learn from each other and such a high standard.

On a similar line, I recommend the ongoing thread on MM started by unwise2.

https://www.stockopedia.com/content/trading-uk-stock-market-using-mark-minervini-strategy-427488/?page=1#comments

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ISAallowance 6th Mar 14 of 22
4

Another one that has come off a lot is K3 Capital (K3C), that has halved from ~400p to ~200p in the last year after running up over 100% in the 6 months prior to that. I'm keeping an eye on that one for a possible entry since it has fantastic quality metrics and unlike some in this thread backs up its earning with free cash and a decent dividend.

I haven't bought yet since I think it could possibly have a profit warning in it if corporate transactions grind to a halt during brexit uncertainty, but it's certainly on my watchlist.

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unwise2 6th Mar 15 of 22
5

All of the mentioned companies highlight the fact that regardless of your chosen method, fundamental/technical, investor/trader you need to know 5 things from the very beginning:

What to buy
When to buy
How much to buy
When to sell at a loss
When to sell at a profit

I learnt number 4 the hard way, the biggest ever loss I took showed a 35% profit before nose diving. Unfortunately share prices can tank long before official news confirms something has gone wrong.

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Merlotman 11th Mar 16 of 22

Tmarr thanks for a great post. Looking at your 4 factors I would rank cash flow at the top of the red flags not only due to its importance in my view but also it is probably the easiest to assess using our usual analytical tools. Of your original list I hold XP Power (LON:XPP) as I believe the cashflow blip caused by tactical build of basic inventory should disipate in due course.

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LongValue 11th Mar 17 of 22

In reply to post #456673

XP Power (LON:XPP) is a company that I have held in the past and is still on my watchlist. However, I was a little concerned when its recent annual results revealed a spike in debtors when compared to the increase in revenue. The former was up by around 38% while the latter only increased by some 17%. Stock was also up by almost 50%. My understanding is that it has had supply chain issues. However, that seems to be feeding into its cash flow situation.

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andrea34l 11th Mar 18 of 22
2

There are some valuable lessons to be learnt from the stocks listed and some of the comments made, both in the original post and in replies. I've been a victim with Bilby (LON:BILB) and couldn't understand why the price dropped from 135ish to around 100p even before the huge director sale. I think there is another valuable lesson to be learned with many of these stocks - USE STOP LOSSES!! I feel that the stop loss should ideally be relative to overall movements in the markets, so if for example the overall AIM or FTSE-All-Share indices are down 5% and stocks one hold are similarly down that percentage then there is nothing in principle to worry about... but when losses are mounting when the markets are moving in the other direction then to me this is an indicator to sell.

Another thing I can't understand is why people top up when the price drops on a profit/trading warning?? It just doesn't make sense, why buy shares in any company that is performing below expectations?

I don't suppose anyone can please advise an easy way to calculate free cashflow? This is mentioned a number of times in relation to stocks on this post.

p.s. I looked at Watkin Jones (LON:WJG) and the figures in the last results look good.... but a director has recently sold almost 568k shares at around 225-226p, with no explanation why :-/

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barnetpeter 11th Mar 19 of 22
1

Can you perhaps add stuff like Quiz .....floated at a crazy price and nearly 90 per cent down since IPO. Outrageous really.....

Also on Aim there are so many mineral / oil stocks that seem to be lifestyle companies for directors who make dubious and doubtful promises that they can never deliver on. Huge salaries and bonus payments.....all funded by multiple share issues. More rubbish than I can ever remember in 30 years.

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Merlotman 11th Mar 20 of 22

Timarr
Two more I think would be worth adding to your list. Bonmarche Holdings (LON:BON) where OCF has been in steady decline for 6 years with FCF turning negative in 2017 and a definite story share, Wey Education (LON:WEY) where the cashflow speaks for itself.

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purpleski 11th Mar 21 of 22
4

Timarr

What a brilliant and thought provoking piece.

I am (4 are current holdings) or have been invested in 10 of the stocks you review. Overall I am ahead (the timings and amounts are too varied to give an idea of percentage returns).

If I had stayed away from Israeli companies (XLMedia (LON:XLM), Taptica International (LON:TAP) and Plus500 (LON:PLUS) ) the gain would have been 2.5 times greater. So that is certainly a take away for me. I will think twice before buying an overseas AIM company or maybe Israeli AIM companies. I own Somero Enterprises Inc (LON:SOM) and XP Power (LON:XPP) both of which I think are great companies and long term holds for me.

I still hold XLMedia (LON:XLM) and Taptica International (LON:TAP). The former because the price has been so decimated that I might as well wait and see where it goes and the latter because I think the sell off has been over done.

I think in the end one is always going to invest in losers if one also wants to invest in winners that will substantially outperform the market. One just has to try and ensure (as Leon Boros points out in is talk at Mello Derby https://www.youtube.com/watch?v=xGj3pF3r1bo) that you have more winners than losers.

Thank you once again for the research and insight..

Kind regards
Michael

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LongValue 11th Mar 22 of 22
3

In reply to post #456693

Barnetpeter, that was a good point about the resource sector and lifestyle companies. Not wishing to sound like a broken record but most private investors appear to labour under the assumption that the companies they invest in are run by full-time CEOs. That may not be the case. And it appears to be a chronic problem in the resource sector. The Boards are often composed of people with a myriad of interests some of which may be conflicting. Before investing in a small cap resource company, it may be worthwhile ascertaining how much time the person running the enterprise will actually spend on company business. Incidentally, someone with international business interests could well spend a lot of time travelling (At investors' expense) and very little time dealing with the nuts and bolts of running an organisation.

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