The folks at The Daily Spread are somehow incredible at finding value investing candidates. You see, when screening for value plays, no matter how hard you try, you will end up with pages and pages of garbage companies to sift through. I am at a point where I have so many open positions that I am not actively looking for trading opportunities. I do not currently have the motivation to look for diamonds in the rough. The Daily Spread, through an impeccable work ethic and a fair dose of masochism, was able to find Hollysys Automation (HOLI). Even though I am not actively looking for opportunities, I will take them if I see them. This is not investment advice.
HOLI is just a great company. It has not made a quarterly loss since 2009, as shown in Figure 1.
As you would expect, then, HOLI has been able to accumulate value nicely. It has consistently added around $20 million per quarter to its shareholder equity, as shown in Figure 2.
HOLI pays a dividend sporadically, but I will not model it in my intrinsic value calculation. If HOLI continues on its current trajectory, its IV is $22 per share. That is my price target. I started building my position today at $13.57 per share, so I think the upside is around 62%.
My prediction is probably fairly conservative, however. Looking at the historical price-to-book ratio in Figure 3, we can see that HOLI regularly was between 2 and 3, and it even spiked up to 4 at one point. If we returned to a P/B of 4, the share price would be $72. HOLI is so solid that I would hold it past its IV in hopes of seeing a return to these old valuations.
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