Hi momo,
Glad that we got some traction with point 1. I'm actually not giving them concession. That should NEVER happen. Saying that, they are a small cap, so you need to analyze Eratat as a small cap. Otherwise, you're doing an analysis that is not relevant. NO CONCESSION, just doing a RELEVANT analysis to make it meaningful.
With respect to point 2. Well, your orignial point 2 is different from the point 2 you just brought up. I think I had addressed your original point 2 well enough.
Your new point 2 is pretty interesting. I agree with you that I did not like the placement when it happened (I had actually addressed this as a reply to Ethan), but understand why they did that (for more of what I feel about it, please read my earlier posts. Effectively, it was a dilution (which I did not like) at a price which I thought was too low. However, I can understand the POTENTIAL reasons for it. Not something I like, but something I can accept.) Eratat paying dividends while doing the placement is actually SOMETHING I LIKE very much. It's unconventional, but it does show a strong signal on how ERATAT deals with things... in a more predictable and cautious manner. I've seen a lot of their actions and they are very in sync with their stated strategy, and good corporate governance. As such, I like what they did very much. I've managed to sensemake to a level of confidence which was why I wanted to share my analysis and benefit the readers here.
I've benefited from the discussions on Eratat at this forum for some time already. I got vested because of what was said here, and from my own analysis. Both sides were very carefully looked at... especially the potential issues. Continued strategic tracking was and is being done on a regular basis. The overall story/picture/sensemaking for eratat is good... one of the better ones actually. Of course, I cannot analyze for fraud or any endogenous and exogenous events of large magnitude.
I've followed companies before, whose stories I've made sense of, and they typically being my best winners. Asia Dekor was one of them, where I had conceptualize the ability to diversify holding just 1 stock (Finance professors will tell you that's not possible, but that's only if you treat it from a static perspective. Adding a new dimension of time can yield different expectations over the short and long term, and create the same effect as diversification - from a financial perspective. Speaking to a friend of mine who is a finance professor, he actually validated my analysis. But that's a long story). Held Asia Dekor from both the short and long run to very good effect. The long run could have been better, but goodwill was effectively written off, and it was a huge amount (which is a good thing I practice the removal of all goodwill from the books when doing ANY ratios - as a sign of conservativeness). The other one with a strong story was Z-obee, which like Eratat was doing a move up the value chain. I thought there were some issues (more than Eratat to be honest), but they were also doing a lot of things well, despite their issues being greater than Eratat (in my opinion). In addition, their product can be considered Inferior to Eratat (I know they're different products, but a comparison of products across strategic groups and direct competitors enabled me to come to such a conclusion). Either way, Both turned out very well. Stories take time to materialize. If you don't have the time horizon, then it might be better to park your money somewhere else. The market situation is weak now and emall caps aren't going to benefit quite as much. The blue chips and middle liners of interest will likely move first. However, I've alwsys specialized in small caps because I know that's where I can make the best use of my abilities - which is the ability to smell a deal and structurally protect myself.
Eratat offers that to me. It might for some of you, it might not for others. A strong and proven asset base, an extremely strong revenue inflow and profit potential are good things to have. More importantly, it's DIRT cheap. S chips are scary, but the market has already discounted S chips like nobody's business. If you can find an S chip that does not have governance issues, you've already won half the battle because your company does not deserve that high discount. I believe Eratat has very good communications and governance for an S Chip and a small cap.(please read my first post for a brief summary of my analysis - note: it's not the full thing).
Eratat giving very reasonable dividends is another great thing. Management must continue with a constant dividend policy because creating legitimacy for a small cap S chip is extremely important... and I think they're doing a good job balancing that and growth/profits.
Remember that one should always invest in a company that one knows well enough. There is no such thing as the perfect industry. You cannot have everything. Even the darling of investors now (Apple Corp) had significant issues and almost ran out of cash before the Late Steve Jobs can back and took over its helm. Industry does matter (there's actually a research paper of the same name (and a follow up called - Industry does matter. really? - google it and you'll see the effect of industry on performance), but firm specific factors are at least as important. While we look at the industry where Eratat is in and realize that it is a competitive industry, also realize that there's still plenty of room in the industry, especially in China. In addition, some of the most successful players in the industry, like Versace, Louis Vitton, etc show that you can be highly successful if you know how. While Eratat is nowhere close to these players, they seem to be very successful in moving up the value chain. Most likely, they'll never be as successful as these players, but if they even achieve a fraction of what LV has achieved, you'll looking at GOLD.
Cheers
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