I was right about Noble

In my previous post about Noble here , I wrote that Noble is performing badly with a bad ROE and a bad D/E ratio. When these 2 ratios are faring badly, the company is heading for disaster.

But that's not the worse. The worse is- the commodities market is NOT showing any signs of improvement at all. When the industry is not improving, how can Noble's financials start to improve? Not to forget, it needs to continue paying its debt.

Today, Noble shares were cut to junk by Moody's.

"The worsening year-long rout in commodities, which has punished prices of raw materials that Noble handles from oil to copper, has overshadowed cost-cutting plans and will likely hurt access to funding and challenge its profitability, it said."

Noble's share price has now dropped to 0.41.

Please do not think it is 'Cheap'.

Stocks look cheap because the prices have dropped since its high time.

HOWEVER, there are always reasons what caused the price to drop and majority of the time, these reasons are due to valid rational decision thinking by the elite traders and banks.

Only very occasionally, very miraculously, will share price experience a sudden irrational emotionally driven drop in price. That will mean the price is 'undervalued' beyond a reasonable doubt. And yes, it certainly won't last long for such price to continue.

Remember, investment is certainly not a gamble. Much research and hard work is needed.

If you cannot resist the temptation to make money quickly, you are bound to lose a lot in the stock market.

Why is Noble a bad buy even at $0.47

I know there are many Noble fans in Singapore. Sorry, but I really cannot super cannot understand why are people still buying Noble in this market?

Before I study its financial statements released yesterday, let's look at how Iron ore prices importing from China have dropped since last year. I relate to Iron ore since Noble group has a major business unit in metals and mining.

From a high of US$160+ in 2013 to the current $40+ now, the Iron ore prices have dropped so much. When iron ore drops, metals/mining/scrap all others drop too.

In fact, the commodities market has sucked so badly this year and it is of no surprise that companies dealing in this sector will face a drop in profits. When your revenue drops but your fixed costs remain, it just means that the profit will drop a lot more.

But here's the thing:

Sorry to say, metal prices show NO signs of recovering as of now.

This is because I work in the frontline of metal commodity prices so I do have some knowledge on the prices.

So if it's still not recovering, can I safely say that next quarter's financial results will still be as disappointing? Which means stock price may drop even more?

Now, let's go on to Noble's financial results:

1. ROE (Return on Equity) Based on info provided by Noble: 5%+
A healthy, growing company should have an ROE of  >15%. 5% is not even 1/3 of that omg..

2. D/E ratio is 2.80+ approx.
This is like super high. A healthy company should be looking at <1

3.When ROE sucks and D/E also sucks, the company show signs that it is heading for Disaster.
If you have a high ROE and a good D/E, it is a very good growing company. If your ROE is low but D/E is also low , it implies that the company is surviving but nothing fantastic.
But if your ROE sucks and your D/E also sucks, then likely it is heading for a disaster.

4. Profits dropped 83%,
Not a surprise when commodity prices drop so much. However, cash flow is now positive and it seems that Noble has done a good job in cutting costs.

I can't determine what is a good price to buy given that the earnings are really volatile in this terrible market.

Conclusion:
Will only consider to buy when the commodity market in general show signs of picking up.