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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