I personally agree that the downside risk would be significantly contributed by inflationary threat. This condition will push investors to shift their portfolio into commodity related stocks. Like we have seen recently, SMRA also hit by this condition with -15% ytd based on today closing price. I will show you some numbers about SMRA. While we are waiting for the FY 2010 report, it would be relatively profitable trade for you who are optimistic about this stock since it has been extremely undervalued these days.
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Based on the Income statement summary, we could see that SMRA's revenue is growing consistently and the growth relatively exponential. The annualized EPS in 3Q 2010 is much higher than the previous quarters. With this result, we could assume that the 4Q result would also grow.
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The ROE also significantly grow each quarter. With the growth of the asset faster than the equity which has been shown, we could assume that SMRA is extremely in its aggressive expansion. If the condition of the economy conducive, this aggressive expansion will be transformed into cash flow.
With those assumptions and another assumption that the growth of SMRA is 10% based on its 3Q EPS and 3Q Book Value (BV), I proposed this valuation guide:
| VALUATION | 10% growth |
| PE 20 X | 978.57 |
| PE 25 X | 1223.22 |
| BV 3 X | 1064.49 |
| BV 3.5 X | 1241.90 |
From this valuation, the fair value of SMRA at the end of the year should be in the range of 980 - 1250.
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