Zvijezda is what I believe one of the best opportunities on ZSE, and it is one of the rare stocks I would explicitly recommend. It’s a company specialized in the manufacture of edible oils and similar associated products (mayonnaise, ketchup, pickles, etc.) The primary reasons for that are outstanding fundamentals, which can be seen from the chart below (ttm):
Now, the reason why I will go so far to actually recommend a stock, as opposed to just implicitly suggesting its value is primarily based on the fact that the amount of money per share is nearly equal to the share price itself. Therefore the price of whole business, real estate, inventory, and brand is barely 20% of the apparent value. Since BVPS is 8990, you’re actually buying the whole business at a price equal to a little more than 7% of what it’s actually worth. This sort of fundamentals can sometimes be found in stocks that are on the verge of bankruptcy, but Zvijezda is nowhere near that. With debt to capital ratio of 47%, it’s debt burden is actually pretty light. P/E is not something to write home about, but it’s a positive number which means the capital is pretty safe.
It’s basically like opening classified ads, finding a perfectly rentable house for 20% of the price at which comparable houses are trading, and realizing it’s actually got nearly all of that amount sitting inside in piles of cash. In a real estate market, such opportunities are practically certain to be some sort of a scam, and the chance to find a legitimate one is probably less than the chance to win a lottery. In a stock market, however, these things do seem to happen on occasion, and this looks like one of them.
The most interesting thing is the P/FCF ratio of 1.43, which means that cash flow into this stock is humongous. Even though it’s likely to be an anomaly, historical P/FCF ratio has usually been well below 10, which means the stock is a pretty good money maker.
The only problem with this stock is the fact that its primary business is not the kind of product where you can have extreme margins. Nevertheless, margins are good enough to keep the whole business positive. On the other hand, we’re talking about a food production business that is as stable as they come.
So to put it all together, it’s an extremely cheap stock, conducting extremely stable business, with great cash flow, positive margins, low debt, and a whole lot of money on its account. It’s also a stock whose price was nearly 10 times higher during the market bubble 5 years ago, and one that hasn’t really felt the recession at all, as it kept making money ever since. Why some people who were willing to pay 22k for the stock 5 years ago aren’t prepared to pay 3k for the same stock today, even though it’s in a better shape now than it was then is beyond me. Nevertheless, it makes a great opportunity so I’m not really complaining.
Technically, we can see few important formations. The first formation is the beginning of a classical 5-3-5 growth phase, which is currently at the bottom of wave 2. That bottom is reinforced by a strong resistance line, which is actually a part of a descending triangle. The stock is likely to return to the upper triangle resistance, and if it pushes through, it’s likely to become a triple bottom or upside-down H&S of sorts. That would basically mean the stock has entered a no-resistance zone, which extends all the way up to 12000. Although the triangle isn’t yet breached either way, I consider it to be extremely unlikely to sink below the resistance line near 2700kn. There’s just nothing in the fundamentals to allow for that possibility, barring forged financials or upcoming world war. What’s also interesting to note is a significant increase in trade volume that has happened in the last couple of days. Interestingly enough, it correlates with visits to this blog, especially to my previous ZVZD comments. Could these events be related? I won’t claim for certain they are. But what it shows is that the interest for the stock is growing. And increased interest combined with an extremely undervalued stock can often lead to pretty extreme returns.
Picture from Rast d.o.o.