Nothing trades at 1.5x earnings for long and quite frankly I’m sick of having to point out the bleeding obvious. The idea of outlaying 15 cents to buy >10 cents of NPAT earnings is truly one of the single greatest investments that you can make- EVER!
It represents asymmetrical upside and it doesn’t depend on anything other than you understanding that the economic returns of the SWM business ($155 NPAT) do not equate with the extremely low $230m market cap.
I feel like I need to explain this in more simple terms- If I offered you the opportunity to buy a house in Sydney for $60,000 which was earning 20k per year in rent but was able to earn $40k per year in rent in a good market would you buy it? Of course you would ! I too would buy as many of these $60k Sydney houses as I could!
Why? Because the value of an investment is based upon the present day value of its cashflows. When you outlay 15 cents per SWM share you deliver yourself a current yield of 33% per annum! Or once the ad market recession is over you earn yourself a yield of >66% per annum.
It doesn’t take a genius to realise that purchasing SWM at these ridiculously high yields despite having nearly no risk of permanent capital loss constitutes a wonderful investment which will deliver multi-bagger returns as a matter of course.
SWM Price at posting:
15.0¢ Sentiment: Buy Disclosure: Held
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