Following on from the Reserve Bank decision to cut rates earlier this month, Australian interest rates are now at record lows, and the
CBA seem convinced that the official interest rate will to fall as low as 0.75 before the end of the year. Some economists have even suggested that the RBA
should consider implementing quantitative easing, which is insanity in my opinion, but it might just happen.
This backdrop seems quite favourable for expansion, and perhaps this company should consider taking on some debt to accelerate future growth. I know that this suggestion will be heresy for some, but just look at where interest rates are sitting at current. I'm sure Phoslock's annual growth rate over the next 12 months would likely exceed the cost of borrowing right now.
I thought Mickem made an interesting suggestion regarding that Petra Capital report yesterday. Keep in mind the Petra Capital office is located in Martin Place, Sydney, which is only some 500 metres from the Phoslock head office.
I'm sure there would have been a few face-to-face discussions between the PET management and the Petra people over the past few weeks, and I wouldn't be surprised if those 'Change of Director Interest' notices was timed to coincide with the release of that report to Petra's sophisticated investors. Certainly, the pattern of buying last week seemed to have the fingerprints of at least one large accumulator, and the share price only took a few days to get back above 0.80c.
It is worth considering, why are large investors so keen to buy into this stock?. Well, the most obvious reason is that the company is growing at a rapid clip.
However, the other side of the equation is surely equally significant: with interest rates now at record lows, what is the average sophisticated investor going to do with their money?. Leave it in a bank account, where it will be earning next to nothing, thanks to ultra-low interest rates?. Invest in overvalued Sydney apartments, which might end up falling over?. Or in banks stocks, whose share prices could end up collapsing with the property market?.
My guess is that growth stocks is what these investors would be looking at right now, and it is hard to go past Phoslock if you are aiming for growth, in my opinion. I think this stock could quite possibly be another CSL, with another 20 years of growth ahead of it.
At any cost, I feel confident that the large buyers who have been snapping up shares over the past week would be quite content to pay well above the 80-85c range at which the share price has been hovering lately.
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