Gateway eroded by 57%

On September 13th, 2008 I had posted a blog about exiting Gateway Distriparks due to the negative cash flows the company had and decrease in future earnings and EPS based on a VIH analysis. The stock since then from a level of Rs 170 has fallen by more than 57% to Rs 73. I would still stick to my call on exiting the stock and not buying even at current levels. The results for the coming quarter will provide better insight into company's future potential. Until then, i would suggest staying away from fresh positions in the stock.

Exit Gateway Distriparks

Its important to understand that while valuing the stock of a company before a buying decision, a standalone comparison of EPS alone may mislead. Everyone usually with time customizes their own approach to value a stock and this is usually based on some basic principle of valuation. I personally use the VIH approach or Value In Hand for a stock and compare it with the EPS. The difference is the Surplus Value in Hand or SVIH which may be positive or negative.

I picked up Gateway Distriparks to try and analyze how a company with a decent EPS might send distress signals once analyzed based on VIH. For the 2004-2008 period, Gateway Distriparks' EPS stood at 2.73, 4.35, 7.46, 7.88 and 5.91 respectively, whereas its VIH Per Share stood at 1.08, -3.56, -3.88, 5.02 and 3.24 respectively.

The company has been having negative cash flows from investing activities since 2000 and this affects its cash position significantly. Apart from this the SVIH Per Share has been negative since 2004. This is not a healthy sign for the company and indicates that the revenue generated from its operations is not meeting the yield given by the 10 year bond and is adding nothing over and above the EPS earned. This in turn indicates stagnation and inefficient usage of cash and capital. I say, right now would be the time to exit long positions from Gateway Distriparks.