Sarine Technologies

[sgdividends]

I can't help but wonder why are they engaging in share buybacks ?

Nav/share is about 27 cents . I understand that valuing such a company using NAV is inappropriate.

Unless they believe that the potential is so great that it justifies them doing so.

At least they are not cash strapped or full of debts though

[bardsmanship]

This article is a really good read about the risks of De Beers' strategy and how it might backfire on them. The author's POV is that "De Beers’ synthetic diamond marketing and pricing approach looks like a lose-lose situation."

https://www.diamonds.net/News/NewsItem.a...Synthetics

[apenquotes]

As I look at the share price of Sarine Tech drop day by day and month by month, reaching 6 years low, it is only natural for me to question why. But is that how I want to go about investing? Monish Prabais once said the right way to invest is to first have a price in mind before we press the buy button and not the other way round. Buy then wonder what the price should be.


There are pros and cons to having a journal or blog to pen down one's thought prior to investing and during the holding period. As I look back to my old blog posts, all I can say is - very little has changed (many years back since I bought the shares). Yes, there are a few surprises, like De Beers selling synthetic, rough diamond and polishes diamond price disparity and Sarine’s IP problem....but in general, the synthetic diamond market has been and was already rising then, now Sarine earnings has improved (recurring earnings got better).
Many things were already there (years back). I was able to guess that earnings got better (recurring revenue has been getting better)...but I can never guess the stock price. Can anyone, anyway?

There are companies who actually thrive in dull, stagnant or even sunset industries and likewise, not all doc com companies prior to 2000 thrive or even survive. When ppl look at the stock price, they often fail to look at the company and its earnings.
I am not sure if that is how I want to go about investing (Eg. Every day look at stock price and wonder what went wrong. Companies and industries don't change so fast). Stock prices are sentiment driven. We need to ask ourselves, why did we buy it in the first place, at that price – is the reason still valid.
Actually, Sarine itself does not sell natural or synthetic diamonds. They basically got their hands in every slice of the diamond industry pie. They also help to certify natural from synthetic diamonds, etc.

At the end of the day, we can have theories but it is the hard figures which matter.

A few years back -when Sarine Tech stock P/E was 60+... synthetic diamond was already present and rising. 
Now with Sarine stock TTM P/E hitting 27... ppl are still talking about synthetic diamonds. If so - for existing investors- why did u buy at PE 60+ then or even when P/E was 30+...
At one time, Sarine stock price was rising day by day.... earnings were increasing - synthetic diamond was already present and rising. It was THE Growth stock.
Just using P/E as an example. Don't think we should just be solely looking at P/E.

[Wildreamz]

Good follow up questions will be, why own Sarine Technologies today rather than anything else:
1. Is it the growth rate? 
2. The dividend yield? 
3. The balance sheet? 
4. The management? 
5. The likelihood of a rebound in the near term? 
6. Likelihood of an acquisition? 
7. Predictability of the business? 
8. Cheap valuation?

Is Sarine Tech the best counter to own for any of the above?

[weijian]

hi apenquotes,
Would appreciate it if you could refrain from the "chat group style" posting that is generating multiple posts n some of them with "ownself ans ownself" replies

Moderator

[apenquotes]

hi apenquotes,
Would appreciate it if you could refrain from the "chat group style" posting that is generating multiple posts n some of them with "ownself ans ownself" replies

Moderator

Noted. Wanted to consolidate into a single post but something wrong with my HP perhaps. Ended up using the quick post method which limits the no. of words per post... Hah... Let's see if I can combine them using my laptop later.

[apenquotes]

Good follow up questions will be, why own Sarine Technologies today rather than anything else:
1. Is it the growth rate? 
2. The dividend yield? 
3. The balance sheet? 
4. The management? 
5. The likelihood of a rebound in the near term? 
6. Likelihood of an acquisition? 
7. Predictability of the business? 
8. Cheap valuation?

Is Sarine Tech the best counter to own for any of the above?

Those are all valid points. I do agree. 
As investors, we always like predictability. However, businesses are not like that, often they are messy... some quarters are good, some quarters are good. 
Yes, by all means, study these. I don't think Sarine is the best stock to own (not sure if there is such a stock). Just don't be too affected by stock prices (as hard as it is).

1. Growth rate has dropped. But we need to ask if those affecting factors are fundamental/permanent or temporary. Was Sarine able to overcome these.
2. Sarine stock is known for its good dividend yield (2018 - yield is approx. 6.33%). The stock has been giving good dividend yield - the other question would be the payout ratio. It is notable that the payout ratio in 2017 was very high --- given the fact, that Sarine tries to maintain the payout amount despite the drop in earnings.
3. Sarine's balance sheet has always been strong, with no debt. Even now. Could have dropped a bit - but was never an issue. Don't see how this company can go bankrupt. It does make looking at the ROE easier (since it has no debt).
4. There was a change in management recently but not drastic. Changing of old guards.
5. Not sure if you mean stock price or earnings. Frankly - I gave up on predicting stock prices. In terms of earnings, I think chances are good.
6. Possible - but its valuation is not exactly dirt cheap.
7. As the percentage of recurring revenue increases, the predictability part becomes more certain. And it seems like it is heading that way. Latest quarter, if I am not wrong, recurring revenue account for 42% of total revenue. Years back, Sarine has steered the business model more towards recurring revenue, which I think is a good thing. But its business is nevertheless tied to the diamond industry - so there is this unpredictability. I don't think a single statement can answer that question.
8. There many ways to answer this ques. Via P/E, intrinsic value, NAV, etc. Also how one compares it - eg. do you view it as a Tech company (if so at TTM P/E 27 is it cheap compared to other tech stocks?), or historically what was its P/E (is it cheap now compared to its historical P/E). Again, I don't think a single statement can answer that question.

[Wildreamz]

Thanks for the input. 

To me the business is too difficult to evaluate unless you have special insight to the diamond industry, scientific equipment industry and the certification industry.

Sarine is too small a player to be setting their own destiny. Their short-term future probably lies in the hands of much larger monopolies and monopsonies in the diamond industry, and global market demand for their products and services.

They are working in a very niche area, that is subjected to the risk of rapid technological shifts, and change in consumer tastes.

There is some value to their tech portfolios and IPs, and their profitable business, which makes it a potential take-over target. But I'm not sure I would simply assign a "tech" company valuation of ~30 PE, because many of the companies that deserve that multiple are fast growing companies (growing at at least ~25% top line growth rate) for at least the next few years, profitable and are market leaders that face little competition, operating in a burgeoning industry with huge potential total addressable market.

In summary, I think it is very difficult call to buy at today's price, unless you have special insights to the diamond industry and the company's ability to execute.

[apenquotes]

Thanks for the input. 

To me the business is too difficult to evaluate unless you have special insight to the diamond industry, scientific equipment industry and the certification industry.

Sarine is too small a player to be setting their own destiny. Their short-term future probably lies in the hands of much larger monopolies and monopsonies in the diamond industry, and global market demand for their products and services.

They are working in a very niche area, that is subjected to the risk of rapid technological shifts, and change in consumer tastes.

There is some value to their tech portfolios and IPs, and their profitable business, which makes it a potential take-over target. But I'm not sure I would simply assign a "tech" company valuation of ~30 PE, because many of the companies that deserve that multiple are fast growing companies (growing at at least ~25% top line growth rate) for at least the next few years, profitable and are market leaders that face little competition, operating in a burgeoning industry with huge potential total addressable market.

In summary, I think it is very difficult call to buy at today's price, unless you have special insights to the diamond industry and the company's ability to execute.

Simply put - it belongs to the "Too Difficult to Understand" tray ")

[karlmarx]

Hi apenquotes, it looks like you are down with a case of the stock market blues. As most stocks trend lower over the past 12 months, some investors may feel excited at being able to buy more of their favourite stocks at a lower price, while others cringe each time their portfolio value decline. I believe investors' response towards market downturns is a reflection of the conviction they have in their own investment thesis. You are certainly not the first in VB to feel aggrieved as your stock continues to go lower as you average down. We wonder why the market behaves in this manner, as we tell ourselves that our investment thesis remains sound. As a check on myself, I frequently ask 3 questions.

1) How do I know that my investment thesis is sound?

Most investors have their thesis/reasons for whatever they purchased, the problem is there is nobody to verify whether the investment thesis is correct or wrong, or at least 'more correct' or 'more wrong.' Unlike in school where your professors may point out and discuss the weaknesses in your thesis, the market only tells you whether your predicted outcome is correct or wrong, and usually only after a long period of time. Even if you post your thesis for all to see, few may be able to give constructive feedback because few may know better. And there are also those who possess insights but do not share.

Nobody can say their investment thesis is foolproof; that is, 100% sure make money. But those who have their own proven method will make money more often than they lose. Therefore...

2) How much confidence do I have in my method?

I started by basing my buy decisions on inadequate methods (e.g. p/b, p/e low means buy). When the market tells me that I'm wrong, I reflect on my method, and make changes. But during a bull market, the market rewards us even if our methods are inadequate. It is only during periods of less market euphoria that the inadequacies of our method are exposed, and catch us by surprise when they fail to work. Since it usually takes some time for the market to tell us that we are wrong -- and time and money are precious --
it is better to not only realise our mistake when the market tells us so. Hence...

3) How can I improve my method?

The basic of investing is investment analysis. Investment analysis is difficult for most because there is no formal training for this skill. As a learner, my personal solution is to continuously reflect on my process by learning the investment success and (especially) failure of others, and then apply the learning on our own investment theses. WB's annual letter to shareholders is one popular source for learning materials. Locally, Lighthouse Advisors has -- as of this date -- 39 newsletters offering 39 lessons, and numerous investment theses and reflections on mistakes. I read them over and over again. If you want to make your own cake, you must learn how to bake.

http://www.lighthouse-advisors.com/index.htm

...

As for Sarine's business, I must say that it is something I do not fully understand, so I'm unable to offer any insight. Its fortunes could turn around in years to come. I have no idea.

But with regards to any investments in general, the key aspect is knowing how much the company is going to earn in the next 5-10 years. With that, you can decide whether you want to pay more or less for those earnings. If you can't be sure about its earnings -- which means this business is not in your circle of competence -- you are free to walk away. Plenty of other companies to prospect.

Even if you cannot forecast earnings, you can still play the game by giving yourself plenty of MOS; by buying at very low valuations. Usually the kind of prices that are only available during market shocks. Personally, I consider anything more than 20x p/e to be very expensive. So 60x p/e wouldn't even make sense to me at all. There are many people who have made money buying high p/e stocks, but I don't know how, so I'm never going to try.