where is the upside?, page-4

I am not an analyst or any sort. Just stating the facts after doing my homework on AMA. I also posted in Aussie Stock Forum on CMI, you may say I work for Raymond as well :P

I am not talking about ROE(Return on Equity), I am talking about ROIC(Return on Invested Capital). It is term to decide how much tangible assets are needed for daily operations. Thus, it is an indicator of the strength of the business, and the business's ability to generate free cash flow. ROE involves historical adjustment like share issuance, huge write-downs most of the time. Therefore it is not really worth paying attention to. There is a world apart between ROE and ROIC.

There are quite a lot of stocks in AU I like(I am from EU), but only a few are cheap enough to buy. I am also a huge fan of the Magic Forumla, so every stock has to have high ROIC for me to be interested. So far, I picked only CMI and AMA after reviewed a few hundreds non-resource stocks in AU. My method is simple, I have a list of AU stocks pulled from Bloomberg, then I go through them from A-Z. I ignore any resources stocks, which I do not have any clue, and stocks with market cap over 500 million, which I deem to be too large for me. I read annual reports of all of them disregarding SP. In a sense, yes, I am an analyst, but for myself only.

Insiders have been scooping shares in a way I seldom saw. The COO swapped his cash compensation for shares at 4 cents per share, one of the things made me really interested. Recently, the filings suggested over 5 million shares were issued to insiders to satisfy employment conditions. What the hell is that? Who got the shares? How they paid for it? Cash or loans? Did somebody swap salary with those shares? I sent an email to AMA, but the company secretary would not give me any details.

If you look at the Capex in the annual report, you will learn that Capex has been a lot less than D&A for a few years. As Mr.Malone said, the company now is very lean and it is focusing on paying off the loans. He also said there are quire a few things to do after the debt dropped to a more controllable level. Like any business, there is always somewhere to invest. A new machine, new services, new products. Because AMA has been underinvested for years, the first few investments will likely to be no-brainers. You know, since the stock is already cheap, only single digit EPS growth will make the shareholders very happy.

Here I have the right disclosure :)