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Friday, April 27, 2007

Sum of Parts

Here is the story of an interesting trade that I closed at the end of last month. I was running my screens the first weekend of March and encountered this stock. Here are the vitals:-
Price to Book - 1.2
Price to Earnings - 2.0
This meant that you could get more than 40% return on this stock just from earnings. It seemed too good to be true!!! I dug further on this stock - Thermodynetics(TDYT) and found that they had reorganised after the end of the last fiscal and now owned only one subsidiary. The subsidiary - Turbotec - is listed in the London AIM market and has been trading at GBP 0.70. TDYT owns 56.32% of Turbotec. On a per share valuation basis, this puts the value of the investment in subsidiary at USD 2.44. There were no other major liabilities on the balance sheet. The stock was trading at around USD 1.65. I didn't know much about the industry segment TDYT was in - heating, cooling and refrigeration applications.
I immediately placed an order and ended up with shares averaging 1.68 in the next two weeks. As is my practice for such trades, I immediately placed a sell order - good till cancelled
- at my target price of USD 2.40. The order executed at the end of the month. A good return of 36.6% in less than a month's time!!!

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