Valuetronics – Moving out of the Value Trap?

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As we hunt for sweet deals in this sweet February, many companies are reporting earnings and it may be time to see which companies can continue to prove their strength in the midst of a slowing economy.

Earnings

As we roughly scan through these names and their fundamentals, one of the company with interesting financial is a company Valuetronics Holdings Ltd
http://www.valuetronics.com.hk

Valuetronics-Highlights

As we can see from the pictures, they are into 3 different segments

A quick overview of what they do:
1. Design and Development / Original Design Manufacturing

    These are things like Caller ID telephone products, Cordless telephones, Thermostats systems, Alcohol Breath analyzer. See the whole list here:

    2. Manufacturing

These are things like Plastic Tool Fabrication and Injection Molding, Metal Stamping and Machining
Printed Circuit Board Assemblies... see complete list here

3. Supply Chain Support

    These are items like drop shipment, spare parts inventory and shipment. See complete list here.

    I would think that their products and services are probably cyclical and I am interested to see if they will be reporting better earnings.
    Here are some things notable about the financials of Valuetronics

    #1: No Debt

One thing that I find attractive is the fact that they have a clean balance sheet with no debt.

V1debt
Source: http://sgx.com/wps/portal/sgxweb/home/company_disclosure/stockfacts?page=2&code=BN2&lang=en-us

#2: Earnings and Dividends

    We can see that earnings and dividends are relatively stable. It is generally cyclical but the payout ratio is healthy.

    V1 EPS
    Source: http://sgx.com/wps/portal/sgxweb/home/company_disclosure/stockfacts?page=2&code=BN2&lang=en-us

    #3: Growing Book Value and Healthy Cashflow

    A growing book value and healthy cashflow also help give investors confidence.

    v1 Book Vaue
    Source: http://financials.morningstar.com/ratios/r.html?t=BN2®ion=sgp&culture=en-US

    #4: Valuation (Breaking out from a Value Trap?)

    Valuetronic's PE Ratio is around 9.6. This is pretty much considered a low PE this a good valuation for a company with decent fundamentals. The concern we may have is that some companies are forever undervalue with Low PE. There we noticed something worth considering

    V1 Value

    If we look at the historical PE of Valuetronics, we can see that the PE has always been low until recent years it started to increase. The 5 Year Avg PE is 5.7.
    Of course increase in PE can mean 2 things:

    1: The market is beginning to recognize this stock and thus demand has increased causing the price to rise thus increasing the PE. This will be considered a good thing for the business as it is more reasonably valued.

    2: The 2nd reason could be that the price is not moving but the earnings has been dropping. This pretty much means that the market is not even interested in this stock at all and yet the PE increases due to falling earnings.

    Lets explore and see which scenario could Valuetronics possibly fall under.

    V1Price

    From the 5 years price chart, we could see that the price of Valuetronics is increasing and from our analysis of its Earnings Per Share, we know that its earnings are slightly cyclical yet stable. So it is likely that the market is recognizing Valuetronics more, and it is possibly getting out of the Value Trap.

      Conclusion

    Valuetronics had been reporting good fundamentals with clean balance sheet (No Debt). It also gives out dividends based on its earnings and seem to have a conservative payout ratio. This is stock I will be watching closely to see its earnings when it reports this month.

    Disclaimer: I do not own any Valuetronics Stock. This is not a buy/ sell recommendation and is purely for educational purposes only. Past data does not guarantee future results and all investment carries risks. Individual investors have to do due diligence and practice proper position sizing when choosing to invest in any investment vehicles.

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