Recently we have seen the spectacular spiral of OSIM, a stock that has been rising wonderfully these last 2 years from as low as $1.10 in June 2013 to as high as $2.94 in May this year. This spiral is definitely a result of miscalculations by OSIM.
I think one of the main job of Ron Sim, OSIM's CEO is to keep a constant outlook of projection target by analysts and to keep them down so that the actual earnings won't be too far off the analysts' expectations.
Ron Sim can't possibly not know the sales projections is slowing down for the quarter or even for the year ahead. He allows the market to continuously expect OSIM to outperform what the analysts expects. He just did not manage the expectations of the market or the analysts.
In fact, recently one of the analysts, Macquarie Research analyst Sam Chan downgraded the stock to "underperform" in June with a target price of S$2.30. He said, "OSIM had been an impressive turnaround story and earnings growth was driven by increasing margins, but that story was over."
He pointed to four factors: There are near-term headwinds in China; it is too early to be bullish on TWG; sales growth excluding TWG is slowing; and management has a poor record of meeting their guidance targets. His latest price target was S$1.90.
Poor record of meeting their guidance targets! If Ron has done his job and keep a close look at the market expectations, this should not happen! One thing Ron Sim could have done is to give a projection last quarter that this quarter might not be up to what the market expects. He could have jolly employ a financial person to advise him on it. Given the inventory and the sales projections, Ron would have got the figures beforehand and give a warning first to calm down the expectations.
I am sure if he has done that, this fall would not be this bad! Apple's CEO Tim Cooks learnt the hard way since he took over from Steve Jobs. MANAGING MARKET EXPECTATIONS! I hope Old Ron will learn from this episode too!
One and a half years of climb is gone in just 2 months. This is the cruelty of stocks!
One and a half years of climb is gone in just 2 months. This is the cruelty of stocks!
But having said that, I do believe that this price may be oversold. I am looking at the support of $1.50 to hold.
Given its efforts to expand in the TWG business and Ron's entrepreneurial ability and massage chair monopoly, I am sure this stock will be coming back with a vengeance when the panic subsides!
Price now: $1.75
Strong Support: $1.50
Target to buy: $1.50 - $1.55
Stop loss: $1.39
Rgds
Daniel Loh
