Koon Yew Yin 18 Dec 2020
Among all the criteria such as dividend yield, cash flow, bank balance, net tangible assets (NTA), etc, the most powerful catalyst to push up the share price is profit growth prospect. Investors should not buy any stock that cannot report increasing profit. For example, currently almost all the property companies cannot report increasing profit because there is so much of oversupply of properties. There are so much of unsold properties in every town and city, although the company’s share prices are selling below their NTA.
Currently the Covid 19 pandemic is affecting almost all the listed companies except medical gloves stocks and medical products for the virus prevention. As a result, all the glove makers can easily increase their selling prices to make more and more profit.
Among all the glove stocks, Supermax has the best profit growth rate. Its price chart shows that it has gone up from 70 sen on 23rd March to close at Rm 6.90 yesterday. Supermax share price has increased nearly 10 times in the last 9 months due to surge in demand for gloves. Its EPS for the quarter ending September was 30.58 sen. Its previous quarter EPS was only 15.29 sen. Its profit has increased by 100%. Its profit for the next quarter ending December should be another new record high. The company will likely make the announcement in Mid-January.
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Top Glove price chart shows that it has gone up from Rm 2.04 on 23rdMarch to close at Rm 6.70 yesterday. It has gone up 3.3 times in the last 9 months. During the same period, Supermax has gone up 10 times. The only reason is that Supermax has been reporting better profit growth rate than Top Glove.
The Supermax price chart below shows that on 30th November, it started to drop from Rm 9.10 to close at Rm 6.90 yesterday. It dropped Rm 2.20 or 24% within 2 weeks while the demand for gloves is still surging. The chart shows that it is on a down trend. The question is whether it will continue to drop or not. I wish I have a crystal ball to be able to tell the future.
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Why investors are selling?
UK and US are starting to inject vaccines to their citizens to prevent the spread of the coronavirus. Many investors are selling because they believe the vaccine will reduce the demand for glove. a
Another reason could be the big investors are purposely pushing down the price so that they can buy back at cheaper prices.
Serious long-term investors should know the current down trend is only temporary.
As long as the pandemic is not completely under control, the demand for gloves will continue to exceed supply and all the glove makers will continue to increase their selling prices to make more and more profit which should be reflected on their share prices.
I would like to suggest that if you did not sell earlier at higher prices, you should not sell now because I believe the price is very near its rock bottom. Moreover, Supermax will announce its next quarter result soon.
My research shows that all the stocks in the other sectors cannot report better profit growth rate than glove stocks.