Petergm I am still licking my wounds from another investment of...

Petergm

I am still licking my wounds from another investment of mine - not all that dissimilar to RCR - that recently got whacked, following a profit warning due to a single problem contract. I also recently picked up some more RCR after originally entering at a much higher price.

With these disclosures out of the way, I would like to make the following observations:

1.) It is the nature of an investment like RCR, that unless you are able to maintain a detailed spreadsheet of significant contracts and all associated timelines, it is almost impossible determine exact revenue forecasts.

2.) Likewise, unless you are really well connected, most of the time you only hear about problem contracts, when it is too late to sell.

In both instances, the best you can do as a private investor is to look at a company's track record. Even then, you can get some nasty surprises or excellent buying opportunities - depending on how you look at things.

Looking at RCR, it is not doing too badly - not many companies that currently deliver this kind of performance:



Also, in August/September 2017 RCR raised $90m at a price of $3.55 to fund organic growth. On my calculations, RCR requires roughly 5 cents in working capital for every dollar in incremental revenue, so just as a ballpark figure and very simplistically, the $90m raised, could - all else being equal - fund ~$1.8b in revenues.

Management - I actually regard management highly and the focus on the renewable energy opportunity as both visionary and potentially highly lucrative.

To me RCR currently does not look particularly cheap, but if it can deliver on its growth prospects, in a year or two it will look reasonable.


Now, you might have heard of the old motherhood statement "... Sell in May and go away" (see: https://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp).

Here I need to digress. I HATE motherhood statements!!! ESPECIALLY when they are applied blindly and without much real thought. The dumbest one I ever came across was when a professional analyst's argument against an investment in a high growth stock that was going through a rough patch was that "... a soufflé does not rise twice". He went on to embellish his argument as I listened in sheer disbelief...

So, I am not prone to blindly following the advice provided by motherhood statements, but I wondered if RCR was likely to follow this "rule" - especially due to the nature of its business. As mentioned above, with a company like RCR, it is very difficult to get any insight how the business is tracking. There is no readily observable industry/sector data and individual contract wins do not tell the full story of how the overall business is actually traveling. Then there is always the possibility of problem contracts spoiling any particular half-year result.

Hence uncertainty, hence the share price drift?

I then looked at its share price trajectory and compared it to its recent past going back to 2012:



In the above share price chart, I tried to measure the share price drop (shown in RED) from peaks in the first half of the year to the "quiet" May/June period and then see the share price appreciation from that low to when the full-year result is announced in late August/early September (shown in GREEN).

I actually believe any price chart analysis is always flawed and data can always be tortured to support your argument. However, at least to this little wombat, there seems to be a pattern.

"But what about 2012?" - I hear you ask... well, that was the end of the mining boom, so I did not pay too much attention to that year.

So, not sure if you want to call this an insight, a flawed analysis, or classic case of self-deluded bias confirmation, but there it is.

Keep in mind that the current "dolorous" share price decline can indeed be due to an as yet not widely known about problem contract or other pending bad news, general market de-risking, etc. Also, I have not got the foggiest idea when or if the share price decline might reverse, as there does not seem to be a narrow range of dates when the share price suddenly moves up again. In any case, the only reason I am even remotely acting on my observation is due to the fact that I fundamentally like RCR and I would be willing to hold it through the calamity of a single problem contract, as long as I did not sense that this was indicative of a more fundamental problem with the stock.

This is no investment advice, just my own rambling thoughts.

Good luck!

DYOT