Parkson – light at the end of the tunnel?

[i4value]

After many years, Parkson share price seem to be up-trending. The group main earnings driver is China. It went into problems years ago when the Chinese retail market went digital.

So Parkson had to learn how to be a multi-channel retailer and while doing so, its earnings declined. Then came Covid-19 and gave the company more earnings headache.

Over the past week or so, its share price started to go up and reached as high as 68% of the price the week before. Then came its quarterly results that showed sustained earnings. I think this explained the price hike.

To be transparent I bought Parkson years ago (before Covid-19) at an average price of RM 0.80 per share on the basis that it was a turnaround story.

The stock price has been declining since then. Are the recent price spike and the earnings an indication that the turnaround is bearing fruits? Are we seeing light at the end of the tunnel?

I actually have a framework to determine what to do with my investments when the prices drop significantly below my purchased price. Refer to the chart below. I used it for Parkson years ago and that is why I am still holding onto my Parkson shares. I guess it is time to have another look.  To know more about this decision framework, go to Parkson Holdings - how to handle a price decline

[weijian]

Hi i4value,

Been trained up as a "value investor", my decision making process was pretty similar to your framework.

But some time back, I had an epiphany. I realized stocks that keep giving me "headaches" - requiring turnarounds and averaging down, because of continuous bad news that hit its fundamentals - were probably not worth the trouble.

I tried flipping my epiphany (as CM like to say "always invert") and decided to pay more attention to stocks that keep giving me headaches whether I should average up or not. It turns out, these companies would generally give good news (or at least, they don't keep giving bad news).

Somehow, there are high chances that stocks that win will keep winning (because of good Mgt operating businesses with moats and reinvesting in it), and stocks that lose will keep losing (because of poor Mgt operating businesses with poor/losing moats and reinvesting in it)

Of course, the OPMI has to choose their poison according to their temperament and opportunity costs.

[i4value]

The problem with companies giving good news is that they are seldom cheap. So there are very few buying opportunities from a value investing perspective. On the other hand, companies in trouble are very cheap. So invariably I ended up looking at turnarounds. The challenge with turnarounds is figuring out whether their problems are "temporary" (maybe like the Parkson case) and can be addressed or whether they are secular (eg digital disruption of the newspapers) that is hard to predict. I of course like to think that I could make more money by focussing on turnarounds. Unfortunately turnarounds don't work sometimes and/or it takes longer than expected. But when it works you get multi-baggers.

[weijian]

hi i4value,

I agree with you that good companies (not companies that give good news) ain't cheap. Sometimes, when we are only willing to pay peanuts, we get monkeys. But of course, some of these monkeys turn out great when they "turned around".

But like you said, most don't and so "turnarounds" are rare. So when they do happen on the investor's watch, it gives a great psychological boost to his/her psyche. Because they are rare in nature, the odds are against the average investor. But even great investors have lost big in retail turnarounds though - Bill Ackman has probably lost at least a billion investing in turnarounds for retailers like Target, Borders and JC Penney. The venerable Tan Teng Boo of iCapital fame of Msia has also lost big (for his closed end fund) in Parkson Retail.

Somehow I find these losses fascinating from a psychological standpoint - Is it because they were hoping for that psychological boost of been right? Is it because those brands were once venerable when they were in their formative years and hence they would feel GREAT if they witnessed/played a hand in their turnarounds?

[i4value]

Actually I buy turnarounds partly because I could not find better companies. Another reason is because I thought that I understood the business. Buy over the long run, turnarounds are like venturing into new businesses...you play the odds. I will say that while I have a few duds I still beat the market over a 20 years horizon. So I will not shy away from turnarounds. But I will say that because of the duds, I have learned to analyze turnarounds better. Ya. Expensive learning lessons.