New news is good news?
Automotive Solutions Group (ASX: 4WD) shares are up 50% since last week. Smash repairer AMA Group (ASX: AMA) took an 18% stake in it this morning, and there was an update to the group’s strategic review announced on Friday. CEO Tanya Mason will step down.
With shares now up 50%, I think the immediate opportunity is gone. Down 48% since the IPO, Automotive Solutions could still prove conventionally cheap. But it’s no longer so cheap that I could buy it without doing a more thorough valuation, which I can’t do because I don’t have a full set of results, nor am I completely clear on how far sales have fallen.
Today’s rise is a little annoying because a 50% gain in a week would have set the 10foot portfolio off to a racing start, and I was already investigating the company. But even with 20/20 hindsight, I believe that on balance I made the correct decision in not making a rush purchase.
At the time I was reviewing the company, the outcome of the strategic review was unknown. It was unknown how bad the company’s finances were, how bad the sales and competition will be, whether they’d have to raise capital or take on debt, plus there was the error I pointed out in their quarterly cash flows. There was also the usual (quite serious) IPO concerns with tying together 8 different businesses that had never previously operated together under a corporate banner. Importantly, those issues are still there, but in my opinion the share price now does not compensate for them. So 4WD is back on the shelf again.
I am encouraged, however, because the news of AMA’s purchase (AMA being knowledgeable on the auto industry) suggests that I was thinking about the company in the right way: I.e., that its brands/businesses were worth more than the share price. Even so, it’s still too early to tell if Automotive Solutions Group will ultimately work out to be a good investment, rather than simply being mis-priced.
I’ll be moving on to other opportunities for now.
Edit: I keep forgetting to add my disclosure. I don’t have any financial interest in Automotive Solutions or AMA Group shares.
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