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August 09, 2010 – Comments (16) | RELATED TICKERS: HQSM.DL

I was scanning my watchlist and noticed something interesting in the picks for HQ Sustainable Maritime (HQS).  This is a small company out of China that raises fish and processes and sells fish by products.

Valuation and fundamentals look great.  Single digit PE, selling at 60% of book value, no debt, growing earnings.  Should be like shooting fish in a barrel (pun intended).

The stock carries a five-star rating.  280 outperforms, only 11 underperforms. 

Here's the interesting part.  Only 21 of those 291 active ratings are in the green.  Over 90% of the players rating this stock got it wrong.  All 11 red thumbs are making positive CAPS points on it. That leaves only 10 correct green thumb picks out of 280.

The Fool has shown that CAPS ratings are correlated to performance, but this one sure fooled the Fools.

Current market cap is only $67 mill and I don't know if it's ratable under the new rules.  Even if it is, I have no clue which way to go.  Dirt cheap says green thumb; pick record says the red thumb brigade has it right.

I don't see any investable intelligence out of this, just a little interesting trivia. 

Hadn't planned on posting this, but dragonLZ wanted an investing or stock post, so....

Chime in if you have any thoughts on HQS or just want to share your opinion on Social Security, the deficit or whatever.

Fool on!

Russ

Disclosure:  No position in HQS, but I do like Tilapia.

 

16 Comments – Post Your Own

#1) On August 09, 2010 at 12:31 AM, MyDonkey (< 20) wrote:

Mmmmmm... Tilapia. With HQS sauce.

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#2) On August 09, 2010 at 12:51 AM, ChrisGraley (29.77) wrote:

Without looking at a thing prior, it sounded really good except for the China part.

I hate reading financials on Chinese companies because I don't know what to believe.

What you've posted looks good, but it's all I've looked at.

Chris

(absolutely no help whatsoever) 

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#3) On August 09, 2010 at 7:10 AM, dragonLZ (99.57) wrote:

I like the post (especially the title, +1 rec), but don't like the stock.

It looks to me it's gonna take more than just Tilapia to get this fishing boat turned and moving in the right direction. It's been going down since April of 2009... 

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#4) On August 09, 2010 at 6:57 PM, SeeknDestry (70.65) wrote:

The prblem with HQS is their recievables take a year to get, also they might not get a large chunk of this. Their earnings are tomorrow right? Well the stock took a big dip today... might not be a good sign of things to come. I do own it though, and was hoping it was a good value with a lot of potential growth. 

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#5) On August 10, 2010 at 12:37 AM, TheResurrection (92.39) wrote:

I'm one of the 1 red thumbs.  I was going to invest in it IRL until I started trying to write a coherent reason to invest for fool.  I wrote my post, hit the down thumb and dodged the HQS bullet.

 

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#6) On August 10, 2010 at 4:54 AM, guiganol (53.10) wrote:

I'm one of the green thumbs and a stock holder, but... well, you want to know why it's down: Here's my assessment.

 First, let me say that I still like this company and especially the business they're in, but... boy, management just keeps finding ways to piss me off. So here's the bad (in no particular order):

 1. Dilution. Another Fool expressed concern about the offering they made about a year ago, but I somehow let the company pass. But now they want to split off their healthcare segment and add another 35% to the pool. Granted, I can see the benefits, but it's just the timing that pisses me off (that offering ain't going to be worth much after the beating the stock has taken recently) and I'd like management to show a bit more concern for their current investors. Which leads us to...

2. Investor Relations. If you listened to the conference call, you'll know how sad and boring it was. I swear the opening remarks were meant to either put me to sleep or depress the heck out of me. If my captain sounded like that, I wouldn't go anywhere near that boat or plane or whatever analogy you want to draw. And to get to receivables: I'm still sort of on the fence on this (don't know for sure about their business in this respect), but if it's really needed they have to do a better job of reassuring us. The questions they got about it were handled about as poorly as you could possibly imagine. It sounded like I was part of some absurd joke (with all the money I put in) to hear all the "hmmm"-ing and mumbling. Heck, I don't need a Steve Jobs but show some confidence and self-awareness.

 

3. Advertising. You know the one group that's doing well during HQS's struggles? That's right, the advertising firm. It's about 18% of gross profit in the past 6 months. Now, I know they need advertising, but I'd need to know for sure that they're getting their money's worth. I'd err on the side of doubting it. I think they're wasting a lot of undue money here.

 

Alright, I got more but this is way too long. But if you could stomach the above (and I wouldn't blame you if you couldn't), there's more to the story. HQS's business is still quite a gold mine. A few reasons which I haven't mentioned elsewhere:

1. They sit on the boards of a lot of the organizations that establish health standards and with the law that just passed in China (which I'm sure they were instrumental in getting passed), they've effectively removed a great deal of their competition. Win-win---as a stock holder and to get rid of all those shoddy Chinese practices.

2. Their investments haven't come close to showing the fruit they can bear. This is the first quarter the feed mill showed profit (the first full quarter since it opened) and it will continue to produce even better and better numbers. Plus, the hatchery set to open soon will continue to help the bottom line. If they continue buying up the farms, their set-up will be rock solid. Close to zero percent dependance on anyone and they'll just keep spitting out food. This is the 'solar' of food.

3. Finally, everyone is scared about the receivables and the price is---I believe---at rock bottom. I can't see it going too much further down than it is now. This stock will be extremely volatile still though, but I actually like that to play it in and out. This stock is jumping a lot (went 10% in 2 days about a month ago---and of course back down) so if you do believe in the company, you can buy long and still jump out when you have your fill.

 

Anyway, sorry this was so long. Just my 2 cents. Fine business, but management still needs to learn a few things.

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#7) On August 10, 2010 at 5:11 AM, ragedmaximus (< 20) wrote:

cagc thats a china fertilizer play on the upswing check it out

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#8) On August 10, 2010 at 10:52 AM, guiganol (53.10) wrote:

I stand corrected. Price down even more. Just when I thought this management couldn't show any more disregard for their investors. And all this dilution for what? 10 million measly dollars. The only ones to benefit are the new investors, but who's going to have the confidence in this company when they just keep doing this kind of thing.

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#9) On August 10, 2010 at 10:57 AM, dragonLZ (99.57) wrote:

HQS is down 24% today. It looks like some people just don't like Tilapia... 

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#10) On August 11, 2010 at 4:59 AM, SeeknDestry (70.65) wrote:

Yeah its down because they are going to issue new shares.. the dilution guinanol was referring to. This stock is turning into a complete nightmare. I keep holding in hopes the stock will bounce a little higher and I can sell it. Now I'm stuck at a 50% loss, are you kidding me? WTH is management thinking? I would avoid this stock at all costs if you can just because of the management. As for those who already own shares, well I honestly do not know. I guess we can bail now and take a nice tax write-off...

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#11) On August 11, 2010 at 9:36 AM, DCInvestor123 (< 20) wrote:

I couldn't agree more with guiganol regarding dilution.  Also, I called investor relations yesterday and got some fishy responses 

Basically, the guy alluded to not liking Monday's the 3.2M shares offering announced Monday but said - whether he likes it or not doesn't matter, and that he works for the company so he has to be in line with their decisions. 

Also, the huge jump in income tax this quarter, (not sure if this was addressed on the earnings call) he said was essentially HQ paying taxes to China that should have been paid in prior quarters.  When I asked why they hadn't previously paid them, he said he didn't know if it was intentional or a mistake, but that he would like to think it was an honest misunderstanding.

I was surprised by his honesty but this also gave me great pause.  I don't have the annual report handy but in one of the prior fiscal years, HQ skipped some debt payment and had to pay a fine/fee for it - definitely seems to be some internal issues with paying bills -- which is especially odd considering they've had plenty of cash.  This opens up a whole can of worms regarding the integrity of the 3 owner/operators

Am writing up a few warnings for other fools that I have learned this year and will post later today...

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#12) On August 11, 2010 at 10:29 AM, guiganol (53.10) wrote:

DC... They did address that on the call and, strangely, it was the one thing I believed them on. 'Course it never hurts to look deeper. From my understanding it goes back to one of my big problems with the company---marketing and advertising. They just spent too much and didn't account properly. But let us know if you find anything.

 And SeeknDstry... well, you gotta do what's right for you in your situation but... well, first piece of advice: Never take advice from posters online :) Second piece: check out that volume from yesterday. Over 16x the average and it pretty much stuck in the same range. That means a lot of shares were changing hands and there were just as many people fed-up enough to dump the stock as people who were more than happy to take it off their hands. Anyway, it'd be a shame to lose all that money and---as for myself---I always hate doing what the high rollers want me to do. But... yeah... listen to the first piece of advice and check things out for yourself.

 Also... to add to the downside... can't believe there's still a plan to break off the health segment and dilute the shares further. 'Though I'm hoping they figure out people are pissed as it is and that it's not the best thing to do. For right now at least :(. I swear these guys are feeling a bit too lax about selling all these little pieces of paper.

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#13) On August 11, 2010 at 12:51 PM, SeeknDestry (70.65) wrote:

To be honest I'm not trying to follow anyone, but this company just has me wondering if its worth it at all. Remember that management has controlling stake in the company through preferred shares, so ultimately they don't need to help the shareholders. They also keep diluting the shares outstanding, and for what? How much cash can they need.  I reiterate my previous statement about not buying because of the management. I think theres better managed companys that are worth people's money.

I've been waiting for this company to bounce since February or March and it has just been slowly dieing. Every time it looks like it has hit bottom, nope, it hasn't. Maybe this is it, or maybe this one can really go to zero. I'm going to hold anyway, but I really am at a loss for words.

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#14) On August 11, 2010 at 12:53 PM, SeeknDestry (70.65) wrote:

Although, I guess if you want to buy at the point of maximum pessimism this is probably it.  I could see this going back to 5, so I guess buying now wouldn't be terrible. For any lontime holders/retirement accounts though, I wouldn't do it.

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#15) On August 11, 2010 at 4:03 PM, TMFUltraLong (99.95) wrote:

HQ Sustainable Maritime could make Mickey Mouse hats for all I care.. all you need to know is their revenues are moving up, they remain strongly profitable, and they have $3.05 in cash with no debt after the dilutive offering. They're trading 8 cents...yes EIGHT cents above that right now. You do the math... go Mickey Mouse hats!

UltraLong

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#16) On August 16, 2010 at 2:55 PM, DCInvestor123 (< 20) wrote:

UltraLong - we all looked at eye dazzling cash/share numbers over the past year and were persuaded into the same thinking, but with dilution of 50% in the past 15 mos, we've seen the cash/share ratio plummit.  Future dilution is key.  If management diluted another 50%, your number goes down to $2/share - not quite as pretty.  All the fundamental indicators in the world are worthless if Management gives away half of what you own.  

It's also rather informative to look at the Earnings/share over the past 3 years adjusted for the the current (plus convertible) 18m shares outstanding.  As well as running a scenario with further dilution (maybe 50%).  Not quite as pretty. 

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