Lee Metal Group Ltd: possible 30% upside - Cash rich, bottoming earnings, possible (UPDATE: up 6.5%
This is a quick update to our report on Lee Metal freshly out the oven just a couple days ago (Lee Metal, 30% upside, May 7th, 2017). We said that the stock price could potentially increase by 30% if earnings start to improve due to it's deep value status (PE ex cash is a cheap 4.7x). We suspected that after a 3 year decline, that the earnings decline might be finally arrested. We saw the first hints of it yesterday.
It's quarterly results came out yesterday, and the price has started climbing - up 6.5% to close at 32.5 cents. It's a breakout.
It's 1Q17 vs 1Q16 results: Revenues up 6%. Net earnings up 12%. The numbers correlate reasonably to BCA's estimates of increased construction spending from 2017 vs 2016 of between +8 to +30%. This increase was due to increasing steel prices. It's a good sign. Will steel price be a forerunner of volume demand?
A PE ex-cash of 4.7x with good cash flow and dividend payout with 10% earning growth has a great margin of safety.
As mentioned in our earlier report, it's very likely to hit 35 cents. It will hit 40 cents if the market thinks that this improvement of earnings is not a fluke and will continue in the next few quarters.
The QuantZombie Team
A frivolous poem:
Roses are red, Violets are blue.
Is LM really a 30%er? At least it's got deep value.
The technicals looks like a consolidated bottom but hey see
that on top of that, it's got a good margin of safety!
So what are you waiting for?
Put your foot out the door.
It might be a 30% gainer, or
... something totally else. Haha. Corny. I'll stand in the corner lor.
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** The author of this post has a long position in Lee Metal.