Thursday, January 26, 2006

Eternal Technologies... Again

I've been in a love/hate relationship with this tiny little agricultural biotech company from western China for a while now. The stock has lost me a good 300 bps over the past couple of months. I haven't really thought about the stock as much as I should... but maybe that's a good thing. Investors who think too much get scared; sell off shares due to a lack of news, or let the best of the personal demons of loss-aversion get to them. One can almost always find a thousand reasons why a stock will go up, and a thousand reasons why a stock will go down. In the case of Eternal Technologies, the two arguments seem to weigh equally. The mega-attractive quantitative aspects are off-set by a less than comforting realization that the numbers could be wrong. And the repurcussions from the downside of 3Q can still be felt in the silent wake of losses taken from the mini "bubble" bursting.

Are things starting to look different? After all, as investors, we want to know what will happen in the future, and detach ourselves from what has happend before. I can't claim I know with absolute certainty that the stock will experience the upside that we had expected when we first presented the company. I do know, however, that the story/hype are starting to look better.

The acquisition that we had doubts about--E-Sea Biomedical--is apparently in the process of handling government orders for breast examinations in the city of Shenzhen, and netting a good 400-600k from its operations. Despite the shaky merger and pro-forma numbers due to incompetent accounting/auditing, the business seems real enough. Does this mean that the company, on top of what we originally had valued as only the core agricultural biotech business of Eternal Technology, will be even better than we had originally hoped?

Again, I can't predict the future. But I am fairly confident that 4Q earnings, on top of what we had originally expected from embryo transfers and meat sales, will also include positive net effects from E-Sea. Only time can tell whether or not holding on to the stock is the right thing to do; but boy, am I glad I held on despite the poor performance of the past 2 months.

No comments: