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 PART 4 – “CASH COW,” CHEAP, HIGHER RATE THAN BANK FD

 

(THIS IS PART 4 OF 6)

 

(8)        CAN YOU SHOW ME LUXCHEM’S CASH VALUATION? VACCINES’ RELEASE WOULD STILL REQUIRE HIGH DEMAND OF GLOVES – AS WELL AS GLOVE CHEMICALS (CONTINUOUS GROWTH). THEN, IS LUXCHEM STABLE - “A CASH COW” IN RUNNING ITS BUSINESS? IS LUXCHEM TRULY CONCRETE, ENRICHING AND STILL “CHEAP?” IS ITS FREE CASH FLOW (FCF) BETTER THAN BANK’S FIXED DEPOSIT (FD)?

((CASH VALUATION - CASH COW, “CHEAPNESS,” AND BETTER THAN FIXED DEPOSIT))

In this article, cash valuation of LUXCHEM will be presented - which includes its characteristic of being a “cash cow,” its cheapness, and better-than-fixed-deposit feature.

 

CASH RETURN ON INVESTED CAPITAL (CROIC) = FCF/IC

= 36,588,639/198,344,807 x 100

= 18.45% (more than 10% - indicating it is effective in producing free cash flow from its invested capital – a “CASH COW!”)

CROIC looks at free cash flow of a company on its invested capital. It measures how effective the company is using its invested capital to produce free cash in its business. LUXCHEM’s CROIC is 18.45% - surpassing 10%. It is a “CASH COW!” It is evident LUXCHEM is good in generating free cash flow from the capital it has invested. It is efficient in using its assets as well as capitals to generate more free cash flow in its operations - and will most likely maintain this position in the time to come.   

          We have shown that LUXCHEM is a “cash cow.” It will be definitely excellent to invest in LUXCHEM in the long run if the share price is suitable – in short, STILL CHEAP TO BE BOUGHT. We need to make sure that the current share price (for this cash cow) is worthy and cheap to invest. In order to do this, we need to calculate its FCF MULTIPLE. If FCF MULTIPLE is low enough - below the 20-25 range), then we can surely invest as it is still cheap.    

 

FCF MULTIPLE = Market capitalization (MC)/FCF

Market capitalization = Share price x Number of shares outstanding

= 0.80 x 896,000,000

= RM716,800,000

 

FCF MULTIPLE = 716,800,000/36,588,639

= 19.59 (less than 20 – a GOOD stock which is CHEAP, REASONABLE, INEXPENSIVE AND UNDERVALUED)

FCF MULTIPLE indicates whether the share price is appropriate to be invested (despite LUXCHEM being a cash cow with solid foundation). The rule of thumb for FCF MULTIPLE is that it should be less than 20. Any amount less than this indicates that the share is STILL CHEAP, INEXPENSIVE AND UNDERVALUED BY THE MARKET. For LUXCHEM, it is 19.56 – LOWER THAN MANY FRIED-UP, PEAKING, OVERVALUED STOCKS. FCF MULTIPLE OF 19.56 shows that investors are paying RM19.56 for every RM1 of FCF. One needs to realize that FCF is solid, purely hard cash money – it is more reliable, trustable, dependable, tangible and physical than earnings (net profit). It is something that is already OWNED and RECEIVED. The share price is still LOW AND REASONABLE!

          To clarify this further for better understanding, if we reverse this FCF MULTIPLE, we will get CASH YIELD:

 

CASH YIELD (CY) = FCF/MC x 100

= 36,588,639/716,800,000 x 100

= 5.10% (a GOOD RATE – AROUND 3 TIMES OF CASH YIELD, HIGHER THAN FD RATE OF 1.75%)

LUXCHEM’S CASH YIELD OF 5.10% or in short, paying RM1 to get 5.1 cents a year is MUCH HIGGER THAN the fixed deposit (FD) in bank. If we take bank FD rate of 1.75% now, LUXCHEM IS NOW AROUND 3 (5.10/1.75) TIMES HIGHER THAN FD. IS IT A GOOD BARGAIN??? YES, INDEED IT IS! Let us see these few options!

 

OPTION 1: LUXCHEM’S CASH YIELD (5.10%) – Paying, investing RM100 in LUXCHEM shares, and getting RM5.10 a year

 

OPTION 2: BANK FD RATE (1.75%) – Investing, saving RM100 in FD, and getting only RM1.75 a year

 

Which investment option is BETTER? Which choice does one go for? Investing in LUXCHEM or investing in bank FD??? One makes his own choice!

          Well, FCF MULTIPLE and CY are utilized to discover reasonably, cheaply priced (high yield) cash cow. LUXCHEM appears to be the ONE THAT FITS THIS CRITERIA. Cash cow produces lots of cash money. WITH MEANINGFUL AS WELL AS GOOD ROA, ROE, ROIC, CROIC, ETC., AND TRADING AT A LOW, CHEAP, REASONABLE, UNDERVALUED PRICE (GOOD FCF MULTIPLE AND CASH YIELD), THIS “LUXCHEM CASH COW” IS DEFINITELY WORTH INVESTING IN SHORT AND LONG TERM!

 

"LUXCHEM is an EXCELLENT CASH COW STOCK TO CONSIDER!"

 

          With all these financial and accounting figures, you get a clearer picture of LUXCHEM’s business position. In PART 5, we will calculate the intrinsic value or fair price of LUXCHEM. We will use various methods to get its intrinsic value.

 

 

 

DISCLAIMER: Please read and understand this disclaimer. This article is written upon observations and it is intended to be a SHARING – for informational and educational purpose only. The intention is to share knowledge with you all. None of what is written here is to influence your decision to buy or sell shares. REMEMBER, IT IS NOT A BUY CALL, IT IS ALSO NOT A SELL CALL. This article is from one’s point of view – consisting of various opinions. You are welcome to read this article, however you need to do your own research first before buying or selling any shares. You should be aware that you buy or sell shares at your own responsibility and risk. This article doesn’t recommend any buy or sell call decision in shares. Share market investment comes with risk, and no one can guarantee everything. It is only a sharing. AS ALWAYS, you need to do your own diligent and prudent research before investing. To buy or sell any shares ENTIRELY DEPENDS on your own decision, judgment and choice. You make your own call either to buy or sell.



https://klse.i3investor.com/blogs/thinkingmanblog/2020-12-10-story-h1537478560-A_HOLISTIC_ANALYSIS_OF_LUXCHEM_MOST_UNDERVALUED_STOCK_WITH_A_FAIR_VALUE.jsp

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