Business Model (生意模式)
Fundamental analysis is not only about value, but also business itself, and business may or may not affect the share price directly. One of the examples we saw this year is healthcare, any companies that are related with healthcare products will have their share price surged up their historical high.
Why is business model so important? Take year 2020 as an example, if you are a construction company, property company, or tourism company, your business will definitely be significantly affected. This is also the reason that no one would like to invest in these companies after the outburst of the covid-19, not after the vaccine is released in late 2020.
When investing in companies, we shall choose companies that their business will be essential in the future. A few examples included electric car, technology, cashless companies. There are also companies that will not be as trendy as these but also significantly important such as pharmaceutical, healthcare and consumer product. These businesses are a must in the future whether the economics are good or bad, as someone is unable to survive with medication support, or unable to work without the support from technologies.
It is also not advisable to invest in companies that are constantly affected by commodities pricing. This is because their profit is manipulated by the commodities price, such as oil, palm oil and gold, and that is something that the company itself has no control over it. For example, the oil price dropped to around 30 in March and April 2020, making the oil related companies to suffer severe losses on their business, and significant drop in their share prices. On the other hand, palm oil companies are benefitted from the low inventories and high palm oil pricing, making most palm oil companies reached their historical high profit. However, their profit will be reduced if palm oil price dropped below RM3000.
In short, we should not only focus on numerical value such as profit margin, PE ratio and such, but also focus on the business model. Look in depth on whether their current profit will be sustainable in the future, or is there any chance that their business will grow more in the future.
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