JICPT| Gree is testing M bottom, creating buy opportunity
Frankly speaking, I love Gree which is still the best Air conditioner manufacturer in China. I started to trade it back in 2012 and still hold some shares as of today.
The company has been up by more than 900% in the past ten years. It used to be must-have stock for value investors due to its outstanding financial performance. However, things started to change from 2018.
The below is my personal view for reference:
1. single-product line business strategy: No doubt, Gree makes the best AC with competitive price. But 92% of its revenue comes from AC. However, the AC sale has highly correlated with real estate. I recall annual sale of ACs are capped at 23-25 million per year. Against the backdrop of structure reform, government wants to replace the model with new one(innovation) to achieve GDP growth, not through selling properties. I don't see numbers will jump in the coming years.
2. Diversified development strategy failed: Gree announced to make phones, cars, and invest billions into chip companies. But all ended in failure. I think it's better for the management to focus on the home appliances, e.g. floor cleaning robot, window cleaning robot. Some Chinese companies are doing those stuff very well. Their share price soared into sky!
3. Rising input costs: With the super loosing monetary policy from central banks around the world, commodities, such as copper, created new highs. We know, copper accounts for approximately 30% of the cost of producing an air conditioner. it started to become an major issue for AC manufacturers, including Gree. I think they have no choice but to increase the price to hedge the rising cost. But that might impact consumers' willingness to buy. So, I need to read the half-year financial report to do my own research.
Back to the technical side, Price retreated to 61.8% fib level with M formation and Gap. The bad formation is the crossover of the MAs. So, price might go sideways for a while before buyers take control.
I think the 47-50 would be the bottom by checking the PE band of last 10 years.
Give me a like if you're with my idea.
The company has been up by more than 900% in the past ten years. It used to be must-have stock for value investors due to its outstanding financial performance. However, things started to change from 2018.
The below is my personal view for reference:
1. single-product line business strategy: No doubt, Gree makes the best AC with competitive price. But 92% of its revenue comes from AC. However, the AC sale has highly correlated with real estate. I recall annual sale of ACs are capped at 23-25 million per year. Against the backdrop of structure reform, government wants to replace the model with new one(innovation) to achieve GDP growth, not through selling properties. I don't see numbers will jump in the coming years.
2. Diversified development strategy failed: Gree announced to make phones, cars, and invest billions into chip companies. But all ended in failure. I think it's better for the management to focus on the home appliances, e.g. floor cleaning robot, window cleaning robot. Some Chinese companies are doing those stuff very well. Their share price soared into sky!
3. Rising input costs: With the super loosing monetary policy from central banks around the world, commodities, such as copper, created new highs. We know, copper accounts for approximately 30% of the cost of producing an air conditioner. it started to become an major issue for AC manufacturers, including Gree. I think they have no choice but to increase the price to hedge the rising cost. But that might impact consumers' willingness to buy. So, I need to read the half-year financial report to do my own research.
Back to the technical side, Price retreated to 61.8% fib level with M formation and Gap. The bad formation is the crossover of the MAs. So, price might go sideways for a while before buyers take control.
I think the 47-50 would be the bottom by checking the PE band of last 10 years.
Give me a like if you're with my idea.
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