More On Craftprint International

Did you know when you’re stuck in a stock due to a bad trade decision, you spend more time actually analyzing the fundamentals of the stock? That is one of the key trader pitfalls in Investing 101.

Sadly, that’s happened to me so many times, simply because I don’t have the discipline to research properly all the time. Even when its apparent that the stocks I properly research prior to invest in generally turn out to be my biggest winners.

So the point of all this is to outline why I’m still holding on to pump-and-dump victim, Craftprint International.

After scouring through the internet and reading it’s Annual Report 2013 as well as half year report 2014, I have found reason to keep holding on. Call it confirmation bias or whatever, it’s just such a natural human emotion that it is almost impossible to escape from.

Firstly, I went back to the reason for the phenomenal rise in price of this stock over a mere two month window.

Take a look at the chart beside. That’s how sharp the spike is. The reason for this was the announcement made on 8 May, stating that the company had entered into a subscription agreement with two investors. Read through that announcement. Basically, it looked as though Craftprint International was going to be subject to a Reverse Takeover of sorts, since if the convertible bonds and options were fully converted by these two investors, they would become the majority stakeholders of the company.

A brief calculation puts the enlarged share float to 168 + 280 + 210 + 20 = 678,000,000 shares. This means that whatever the current price of the stock, it will be worth 168/678 in the event of full dilution. Using the current price of approximately $0.080, a full dilution means the price of the stock would only be worth $0.020!!!

The good news is that the conversion and strike price of the bonds and options respectively, have been set at $0.050, so surely the new investors will not allow the price to fall BELOW their investment price right? Hence there is a likely floor price of $0.050, otherwise it will not make sense for the new investors to converted the Call Options. The non-transferrable convertible bonds have been subscribed already (sunken cost by the new investors) at the cost of $0.050/share.

The second reason I’ve found to hold on to this stock is the fact that its books aren't all that bad. While it is a loss-making company (it’s been reporting losses for 5 years now) AND declining annual turnover, the value of it’s property, plant and equipment has been steadily rising (industrial space is shrinking in Singapore).

Based on it’s 2013 annual figures, the company’s Total equity and liabilities stood at about $33mil. This gave it a per share value of $0.190! So there may be more ‘meat’ in this company than what many people think.

It’s share are currently very illiquid (only 15.85% of the float is in the public’s hands as of the last annual report) so it might be a good opportunity to catch any selldown at ridiculous prices (close to $0.050?).

Hope I’m correct on this.

But once again, it’s always true that only when you’re stuck in a stock due to a bad trade decision, do you spend more time actually analyzing the fundamentals of the stock.

HUAT AH!