This week PME & IRI each rises around 100% and 40%. Very fast indeed. And they almost make me sick and got me confounded at first.
PME is a medical technological company specialising in data management and pictures archiving for medical activity such as hospitals and clinics. It has operations in Europe, USA and Canada. In 2009 years ago, it bought Visage imaging from Europe. Visage itself is a money losing business but the integration with PME might help each other for better market penetration and thus better profit. The good thing about the purchase is that 1) it is bought with cash from retained earnings (it said that in the report but reading through financial statement, Visage employees are given options) and 2) it is bought while the Aus$ is high and 3) Visage is sold for $6mio but the actual cash used is only $4mio.
Prior to acquisition, PME was a great business with high margin, high RoE, low cost and low capex. Since Visage is a money losing business, the addition of Visage might put a burden on PME's profits. However, the management is confidence that the sum of the 2 companies would produce a higher profit. Investors thinks otherwise and that sends the price tumble substantially. Since the price is so low, I thought it is a bargain and hope that the management will keep cutting cost and make PME an efficient company. I also bought it also because I see that PME is debt free and its cashflow is still positive. Returning to high RoE would prove that the management is right about acquiring Visage but only time can tell.
Now its price increases dramatically without any news which puts me into alert. I would sell it when the price is right and am waiting for the financial statement.
IRI is also a very good business selling IP management system. Its Prognosis is well known worldwide. It's products is a commodity in the technology world. Its Capex and Sales & Admin Cost are rather high which I find it rather uncomfortable but it is like that in the technology company. The sudden rise in its price is because it will be reporting a much better profit this year. This is a very welcoming news given that the substantial rise in Aus$ is damaging its profit. Its profit this year shows also its leadership in its market.
