Koon Yew Yin 8 May 2021
This is the most important lesson for all investors.
If you don’t know what pushes the stock price up or down, how can you dare to buy or sell stocks? It is safer for you to put your hard earning money in fixed deposit in any Bank.
Profit growth prospect
Among all the stock selection criteria such as NTA, dividend yield, cashflow, EPS, PE ratio, debt or healthy accounts etc, profit growth prospect is the most powerful catalyst to move stock price.
When a company reports increased profit, its stock price should go up. When a company reports reduced profit, its stock price should drop.
Glove stock holders will not like me to use glove stock as an example for illustration in this lesson.
I will use IJM Land as an example. As I am a co-founder of this listed company, I can tell you from my own experience. IJM Land has the most land for development in Malaysia. It has the most property development in Penang, KL and Negri Sembilan. Its share price was shooting up when the company was reporting more and more profit from one quarter to another. But as soon as the company reported reduced profit, its share price continued to drop until it was selling so much below its NTA that its parent company, IJM Corporation Bhd decided to buy up all the issued shares that are not already owned by the company for RM 1.65 billion about 5 years ago. To be sure, I just spoke to Tan Sri Kristnan Tan, Chairman of IJM Corporation Bhd to confirm what I just wrote.
Currently all the glove makers have expanded their factories and also constructed new factories. Moreover, many companies which are traditionally not in the glove business have also ventured to make gloves, thus creating is an oversupply of gloves situation. When supply exceeds demand the glove price will drop. As a result, all the glove makers have recently reported reduced profit. They will continue to report reduced profit in the next few quarters and their share prices will continue to drop like IJM Land.
As I said, this is the most important lesson for all investors. That is why all the glove stock prices are dropping because glove companies have just reported reduced profit. They will continue to drop when they report reduced profit in the next few quarters. I trust all glove stock shareholders know what to do.