Before anyone starts any conspiracy theories, the recent selldown on FGE was on low volumes. The volumes only picked up over the last 2 days (yesterday & today).
FGE provided an update on the 20th May 2011, and by any measure, that earnings update looked good. FGE should also have net cash of more than $70 million on their balance sheet by end of FY'11. That is not a hard ask (look at their HY report). There are a few reasons I can think of on why FGE was sold down (none of them fundamental reasons):
1) Initial low volume sell down and that helped to trigger stop losses (and to a smaller extent, margin calls). You could clearly see stops triggered today.
2) Algorithimic trading by 2 or more parties which trigger selling prices by market movements. (i.e. because FGE is not a very liquid stock, depending on the algorithms used to liquidate or buy positions, these algo. systems can exacerbate a sell-off or rally.)
3) Investors taking profit because FGE has gone up more than 100% this FY. Investors might be taking some profits off the table. Nothing wrong with that. That does not mean FGE is fundamentally flawed.
4) To top it off, inevitably when you have aggressive price movements in the short term, panic or greed can set in. There will be a lot of "sell first and ask questions later" mentality. A lot of that is happening TODAY.
5) The market is always right. This is probably true in the longer term, but markets can get volatile in the short term. In a certain sense, this is self-fufiling in the short term. Stocks go down, market panics, not sure what is happening, fears arise and selling occurs. The converse can be true too. The market is not always right in the short term!! Well, they sold FGE down to P/E's of 1.5x during the financial crisis.
6) When you read about Lynas corporation cancelling their deal with Forge resources, the article is talking about FRG. Forge Group is FGE. Guys, there is a HUGE difference. Whoever is telling investors FRG and FGE are the same company, should be hit in the head. They are totally different companies. FGE has done the work for Lynas and they should be paid. No issues with that. Forge group is an engineering company (ASX: FGE). Forge resources is a mining exploration company (ASX: FRG). Get your facts right before selling.
As always, I try to state only the facts when investing. Don't worry about short term price movements like today. If the fundamentals are intact, just hang on. There is only so much liquidating investors can do (especially when FGE has provided earnings guidance 10 days ago). You can do the maths. Stripping out the cash on their balance sheet, probably trading on a P/E of 9.0x to 9.5x FY'11.
To put it simply, this company has approx. $70 million in cash. That is 3x their market capitalisation back in late 2008/ early 2009. You be the judge on whether these guys have delivered. Go back to all the presentations and see what their objectives were and whether they were reached. From memory, they have always under-promised and over-delivered.
Happy investing.
FGE Price at posting:
$5.36 Sentiment: Buy Disclosure: Held
