fundamentally, its not exactly a strong company. Overvalued relative to its earnings. Cash flow is terrible. Operating profit of R31 mil over the last 6 months to revenue of over R1 bil is not exactly a great return. Competitively, most of these IT services companies are the same. No real competitive advantage. They lose key skills just as quickly as they find them. That's briefly the value side of things. Technically, the thing can bounce up and down at the wiff of a positive or negative news article. So it depends whether you're in it for investment or speculation.
I think it is a good buy at these levels. It should go to over R 1.12 in the next couple of weeks and be up at about R 1,25 by September. If you are happy with this kind of gain then get in. I always find it interesting to see which of the institutions are buying and holding. Investec Emerging Companies Fund bought just over 10 million shares in GIJ in the quarter ending 31 March, which constitutes just under 1% of the portfolio of this fund. Sounds like quite a serious investment when one considers that their top 10 shares in the fund make up over 50% of the fund.
ABuzz, on what do you base the idea that this is a good buy? Just because an institutional investor bought 10 million shares, doesn't mean it was a good buy. Institutions are just as fallable as us smaller investors, if not more so. Remember ITI Holdings, CS Holdings, DDT (@R70+), Brainware, etc during the 90's. Fund managers were buying them as well. The facts are that the company does not offer value at this price. Yes, it may go up to R1.12, but the chances of it staying up there because it offers value is pretty low, unless it's made some serious increase in its earnings over the last 6 months that it can show in its income statement. If it does stay up there, it'll be on speculation. Not on current reality.
Dimitrius, just for the record, I said it was interesting to note what the institutional investors are doing. I didn't say that was what I base my thinking on. And whilst I agree that they too make investment mistakes, I think they probably get it right a lot more than most of us individual investors, otherwise they wouldn't stay in business or keep their jobs. Having said that, there are lots of factors which I look at when evaluating a share and watching which of the investment houses are investing in which shares is a small consideration in the total equation. Anyway, GIJ had quite a good recovery today, let's see if they can sustain it.
Sure ABuzz, there are a lot of ways to skin a cat with regards to investing. But at the end of the day, it's all about what value you see in the company, and I don't see any value, unless you're a speculator. Institutional investors get it wrong more times than they get it right. And so do financial journalists.
Since when did earnings/profitability or other fundamental play a part an IT stock making a sudden jump? For axample, what changed in DTP's business between Jan/Jun? Surely the business was not worth 250% more than 6 months previously. Just remember they are just as likely to fall back after a good run. This volatility makes good money, and frankly I think GIJ might have been left behind compared to DDT, DTP and therefore offers value in the short term.
That's fine. Lets agree to disagree ABuzz. Pleiades, I'm talking about investing here, not speculating. If you want to speculate, then you can go ahead and buy at these levels. But no intelligent person should buy a business for investment purposes if they haven't got the earnings and financial strength to prove that it's worth paying what the asking price is. You're basically buying a R1 coin for R30 here, give or take a few rands. Not very logical. But then again, speculators do give us value guys opportunity to buy at rock-bottom prices when they start to dump at any price. So go ahead. I hope you do make money out of it. I'll pick it up when it's more in line with earnings. I'll sleep better.