1.Press Metal (PM) the world largest aluminium producer and a great company has a spectacular fall from 740 to 540. It is on a major downtrend and continues to accelerate in its decline. This is an astounding setback for many die hard and determined devotees of PM. However, considering that the EPS of PMetal is only 15.2sen, so at 740 it was trading at 48x price earning. This is incredible and unbelievably over price. Therefore, the collapse is not surprising, in fact it is expected. And what Buffett would say it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price. And PM aptly fits Buffett's investment description at this moment in time.
2.Technically speaking PM is on the 5th leg of a major down trend. Its 1st leg was down from 740 to 600 that was minus 140. The 2nd leg which was a retracement up leg from 600 to 660 was up 60sen. The 3rd leg was a continuation of its fall from 660 to 480 that was minus 180sen and in the 4th leg it had retracted back from 480 to 550 that was 70sen. PM is now on the final 5th leg of decline. Just 3 days ago it was 540 and this morning it is 502 and continues to show signs of active selling with its price trending and accelerating downward.
3.what can happen next?
5th leg is the final leg of decline. when this is completed, it will go into consolidation before a new pattern and trend would appear again. In the meanwhile If 1st and 3rd leg are observed as a guild than, it is not unrealistic to see PM would decline from 550 with a quantum of fall between 140sen which is the 1st leg and 180sen the 2nd leg If we take 550 minus 140 that would mean 410sen
4.Does it make any sense or are we bias and what does it means PM trading at 410? Let us do a quick PE comparison and evaluation.
Considering that the FTSE Composite Index recorded a monthly P/E ratio of 15.58x on MAY 2022 and PMetal has an earning per share EPS of 15.2sen and hence, at 410sen PMetal will trade at 410 / 15.2 = 27x price earning compare to market PE of 15.58x. Therefore at 410 and if it happens it is still trading at an impressive PE and a huge premium as compare to market PE. Therefore it is not unrealistically unachievable. It is possible and a near certainty.
5.SHARE valuation is an art and not engineering science. Therefore PMetal hitting 410 is purely hypothetical and a personal and individual perception. No one can predict that it will fall to this level and much less when this will happen.
6. Nonetheless, PM now has more than 11m shares under SBL according to the announcement on Bursa. It is this group of people who engages in securities borrowing and lending has a great interest in PM.
7. They are determined to see it continues to fall and profits from it.
Warnings has been given so obvious... Commodity prices got no place to hide at high level when Fed hike interest rates and shrinking balance sheet (QT). High inflation is the consequences of unlimited QE. rather than the real demand. Cheap money chasing commodity lor.
Hike interest rate 3% could be a disaster to the market. No more cheap money and many companies would go burst soon. More share margin players will cut their stakes in equities to reduce financing costs.
At first I thought I'd want to Q at least at 4.50 but MorningStar Fair Value of this stock is only as high as 0.3911, with only two stars rating, so I'd now rather Q at 3.92. Current price is clearly far overrated.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....