Nice stock pick 370830, just a couple of things I'd watch out...

Nice stock pick 370830,

just a couple of things I'd watch out for. Their annual report shows that the 3million NPAT was in fact as good as it seems.

Firstly, they only made 1.9million profit in reality, the other income (~1.3mil) came from the leftover borrowings and proceeds from the acquisition last year.

In reality, they should of paid this back and declared a nil-balance, thus this is an accounting profit rather than a 'true profit'.

Once this is taken into account this share looks expensive on a 5-year financials basis however they have done an impressive turn around in profit margin, going from ~15million revenue and 0.5mil (2012) profit to 12million revenue and 1.9million profit.

The other technicality they have over-stated is their NTA gain. They only increased their assets by issuing share capital, a lot of it in the last year. While it sounds great to have a 'total assets' of XXX and net assets of YYY in reality they have simply pulled wool over the fact they have 18million debt rather than 7 last year (11million increase) and have issued $18.7million worth of shares.

They have nice growth but their current PE is sitting around 40 on actual profit (although it'll appear like 24 on all the broker reports, because of that accounting) and their EV PE (PE based on EV) is sitting around 50.

The acquisitions they have made will have to pull some serious growth to kick-start the next uptrend IMO.