No. of Recommendations: 1
Hi guys,
I am a Indian. The company I was working for had been
acquired by Flextronics 3 years ago. As a result of
that, I was alloted 371 shares of flex in lieu of salary/bonus
for all the hard work we had put in. :)
Being ignorant about stocks, a quick check to see that
Flex was part of the NSE 100, and that its stock had
traded as high as $19 a share (rate back then was
around $14/share) made me greedly hope for more of
the same. :)
Half Yearly checks showed the stock not going anywhere.
Look at the charts
http://finance.yahoo.com/echarts?s=FLEX#chart1:symbol=flex;r...
I seriously thought of selling out in Febuary but
greed/laziness and hubris made me hold on. :(
So a couple of months when I checked again, to my shock,
the stock had plunged as low as $2! What happened?
Was Flex always over-valued?
My rough and ready analysis for your critique/elaboration is as follows. Balance sheets are dodgy as proved by Enron there and Satyam here. :)
Here I will assume
that the exchange rate remains steady. Probabilities assigned
are arbitary, but since we KNOW it has gone down to $2, I
am assuming 80% probabilty that it will trade forever in the
$2-$8 range, a unrealistically very low 1% chance that the
company wont go belly up, and 10% chance it can go up to $10,
6% chance to $12 and 4% to $15. Are these fair values?
Flex has never paid dividends. Even assuming that the company
is capable of earning 60 cents per share and a interest rate
of 10% (Indian interest rates are higher), the stock is worth
no more than $6. :(
Stocks Target Price Exchange Rate Net worth Probability Value Investment
371 15 45 250425 0.04 10017
371 12 45 200340 0.06 12020.4
371 10 45 166950 0.1 16695
371 8 45 133560 0.2 26712
371 6 45 100170 0.2 20034
371 4 45 66780 0.2 13356
371 2 45 33390 0.2 6678
371 0 45 0 0.01 0
105512.4
The last column Value of investment is nothing but Net worth if the stock reaches that price multiplied by the probabilty I assigned for the stock reaching that price. And I sum up all these values, to arrive at the "fair" value of the stock.
Summing up these values, It seems that I should I should swallow the losses, wait for some time, hope that the stock reaches $8 and just about get 60 cents on the dollar after 3 years of waiting for profits. :) Is that a sane or loony decision?