It had been a year since I wrote an article on the performance of OSIM, Singapore leading massage chair maker cum lifestyle company. Last weekend, as part of my stock review, I was shocked to find that there was a massive meltdown in OSIM’s share price. Granted that I have not been monitoring the local stock market trend for quite some time, OSIM’s free fall merits some attention.
Firstly, in my previous post, I predicted that OSIM’s share prices would reach $3.30 in end December 2014 based on the historical EPS and PE ratios. Instead, the company missed market expectations and profits fell more than 50% to $14 million in the first quarter ended March 31. The market took the cue and reacted immediately. The share price subsequently dropped to $1.61 as of 3rd July 2015, way off the $3.30 target price I had predicted.
The disappointing 1st Quarter performance could be attributed to the lack of new OSIM product launches. OSIM’s new massage chair, uMagic, was launched in April, so the 2nd Quarter would probably see an improvement in sales. The company also reiterated its strategy to pursue growth through new product developments, such as uInfinity Luxe, uDiva, uHip, uSqueez Air, uTrek and uShape Music. The relentless product innovation, coupled with aggressive outlet openings in China, cement OSIM’s position in the market.
OSIM has always been a Singapore market darling and its recent drop in share price should not be seen as an indication that there is a fundamental flaw in the company’s business model. In fact, such correction is healthy and is an opportunity for investors to accumulate more shares at reasonable level. In fact, there were numerous highs and lows for OSIM’s share price and at one point, it was even trading at $0.04 during the financial crisis. Thus, investors interested in this counter must have the right mentality and accept that OSIM is a cyclical stock that is subjected to market conditions.
The company’s financials still look pretty strong. As at 31 March 2015, they were in a net cash position of $256 million. Including fixed income investments of $36 million, the total net cash and fixed income investments was $292 million. Net assets as at 31 March 2015 were $514 million. The net cash flow from operating activities is at a respectable level of $18.4 million.
In view of the above, I would initiate position to buy OSIM if it reaches $1.30. This is a safety margin level which I would be comfortable to buy in. The company would announce its 2nd Quarter report for 2015 on 23rd July and the share price is expected to swing again, depending on its massage chairs’ sale performances. Regardless so, investors should have a long term horizon and big picture mentality to invest in OSIM.
The above article is not meant as an inducement to buy OSIM products or stocks and readers must not misconstrue this article as a form of investment advice. The OSIM’s story is used to illustrate how I perform my stock analysis and there is a need to highlight that I am currently not vested in any stocks. In addition, OSIM did not sponsor me to write this article.
SG Wealth Builder