SSM is cheap. However, the biggest problem for them and like other small caps with low pe ratios is that one or two contracts can become one or two headaches. Example, if one contract is negatively impacted then the fundamentals of the company is impacted.
SSM is high risk but can be also high return (short term). The nature of their contracts does not give confidence to investors longer term. Contracts are lumpy and also require outsourcing. Telstra has decided to cut out the middle man only recently.
If SSM can deliver going forward, I have no doubt it can be re-rated upwards but this is the big question. Can it deliver? Are they too dependent on Telstra and NBN?
Just something to think about.
Yes, value investing is investing in something the market has not valued correctly but sometimes there are reasons as you rightly pointed out why some companies continue to be priced at low earnings multiples.
I must say that I was impressed by the marked improvement in net operating cash flow but that can all change very quickly with a bungled contract or two.
For the record I was out of SSM in the low 50's. Decided that BHP was a better bet short term. Thus far I have chosen correctly. One must remember that markets were on a knife's edge when I posted the original thread.
:) Nic
SSM Price at posting:
28.2¢ Sentiment: None Disclosure: Not Held
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