Mark,
Features of a good growth stock:
Macro Perspective: Growing industry, strong demand, high barriers to entry
Micro Perspective: Strong sales, on time and in budget building project delivery, cashflow positive, making a net profit, good capital management reinvesting surplus funds, good management focused on maximising shareholder value
How does NEXTDC fair?
Macro Perspective: Growing industry yes. Not sure about strong demand based on investor relations reply. To add, Cisco seemed to find it cheaper to spend US $20m to build their own microsite than get a hall with NEXTDC. Hopefully this is one off and not the start of a trend. Would be painful if companies like Amazon, Google, Microsoft, etc starts doing the same.
Micro Perspective :
1. Weak sales no matter how you spin it. Sales function needs to work on this
2. Building project is way late. Zero disclosure on cost overruns.
3. Cashflow is positive so far but will desperately need cash soon to maintain capital expenditure to finish existing projects (refer to my half year results posts)
4. Net loss due to higher interest expense from Notes.
5. Capital management is abysmal. Money raised was sitting in the bank for 6 months bleeding cash.
6. Management seems to be focused on blaming everything else like poor industry landscape, computer led trading, short sellers, etc. Rather than getting taking a long hard look at themselves and try to improve results.
The way the disclosures this year being presented looked suss like something was being hidden. Electing not to restate comparable numbers either hints something being hidden, laziness or incompetence. The choice of early adopting the new accounting standards and having them reversed a few months later with the buyout of APDC, no disclosure of overruns and poor capital management suggests poor form in the finance function of the company. Perhaps CS should focus on running the company better and kicking goals rather than chase vanity projects like overseas expansion.
If such poor form keeps up, expect a strike in the remuneration report this year.
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