4/2/15

Day 100 Reasoning on the share price increase

Reasoning on the share price increase

The stock price of Sichuan Tianqi Lithium Industries,Inc.(sz.002466) had an outstanding open in this morning, and soon reached the daily increase limit at 10%. So I would like to make further digging on this phenomenon in order to find out the reason behind this tremendous share price rise. I will try to cover the internal and external factors that contributed to this change.

When investors evaluate whether to invest or not invest on a particular share, the process can be concluded as balancing the risk and return. As a consequence, the company’s profitability becomes the intrinsic indicator on the possibility of capital gain. The common accounting ratios that were used to predict the company’s share, such as Earnings Per Share and Price related to EPS are the typical examples. Therefore, when a company’s accounting report delivered a positive pattern of expansion, the investors would be injected with confidence on that specific share. The faith granted by the company’s well performance will encourage the buyers on the market. In other words, the share price will increase. Warren Buffet taught us that always hold shares of the company with substantial profit, or at least has the potential to generate profit in the future. The junk stock will never turn into gold, so do not waste your time on them. Back to our case, the Sichuan Tianqi Lithium Ind. Inc. announced their trial quarterly report for the first quarter 2015. The company claimed that the net distributable profit from January to March was anticipated between 20 million to 30 million CNY. Compare to the same period last year, the amount has increased over 20 million CNY. In addition, the company controls 51% of this forecast simply stimulated the share price today. The Talison Lithium Australia Pty Ltd, which is the owner of Greenbushes Mining Mountain. In fact, over 25% of world lithium production is controlled by the company. Hence this invaluable capital asset is expected to create stable stream of cash flows for the business. The combined effect simply stimulates the share price today.

On the external factor side, the Chinese government proclaimed several times that the supportive investment over new energy vehicle area will increase. On yesterday’s China environment monitor conference, the vice environmental minister emphasized the major source of pollutions in urban areas were generated by the motor vehicles. Thus cars that utilize green energy will be promoted with more effort by the government. Actually, the Tesla Motors Inc, which is the biggest electric-powered car producer, has already obtained the new energy cars license at Shenzhen, and it is most likely to be flowed in Beijing as well. This license grants the electric-powered car with the privilege on the separate vehicle registration system, thereby these vehicles may register the plate without the waiting period for the draw. These local and national policies provision represents the immense scale of future development on the new energy vehicle plus all relative industry. And the lithium battery production industry is definitely one of them. Indeed, there were several shares in the industry reached the increase limited today. For example, Guodian Nanjing Automation Co. Ltd.(600268),Shenzhen Auto Electric Power plant Co.Ltd.(002227),and Zhejiang Wanma Co. Ltd.(002276) are relevant companies which share prices were enhanced by the government policy.

In conclusion, the stock price of Sichuan Tianqi Lithium Industries, Inc.(sz.002466) were propelled by the disclosure of enormous profit in the financial pre-analysis, combined with the environmental effect in the market. As a secondary blue-chip stock, the company is expected to have consistent performance to improve capital gain. However, the report also figured out the risk of capital loss due the lithium battery demand in the market has increased far less than anticipated.  





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