Wednesday, January 21, 2009

Cathay Forest Products (CFZ) @ 28c




*DISASTER*! Sell Sell Sell!

I don't know why anyone would have bought this stock as it's had negative earnings for every year since it's IPO two/three years ago. In the first year, it looked like they had great profit margins but small scale (over 90% margins). However, once they grew their business, their profit margins dropped to reasonable to truly marginal (while maintaining negative earnings).

The only way it's been surviving by issuing more stock. It's cash flows are all negative, and it's only positive cashflows are from financing and diluting equity!

It's equity is so diluted that even if they do start turning a profit, it will take forever for individual stock holders to make any money back. Also note, their EPS doesn't look too bad because their huge losses are divided by huge weighted number of common shares!

I would love to have a chat with some of the management and see what their guidance is (because management will always give relatively optimistic guidance because they want to keep their jobs).

It's got all the markers of a company on it's way out with no bailout in sight. Unless there is some brilliant light at the end of the tunnel I don't know about. Otherwise, this is a great case study for careless speculation by naive investors.

Rating: Sell... Short sell!

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