Benjamin Lim asked 5 years ago
Hi Victor & Rusmin,
I was wondering how you would go about valuing a cyclical company like GEAR. The lessons tell me that I should use Price to Sales, but other than that would Price to Cash flow be an appropriate second valuation metric?
Also, I notice that the company has recently secured a US$50million term loan facility, followed by US$150 million senior secured notes. Can these be considered negative signs incongruent with the relatively strong cash flow position of the company?
Victor Chng answered 5 years ago
Hi Benjamin,
Gear is a coal business. Coal are like gold sort of a type of asset class. Hence you can use PB ratio to value them too.
To be successful in investing in cyclical companies, you should buy them during the low time when the industry supply reduce and make sure that their debt level are low. Having a high debt level can be dangerous for cyclical companies.
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