Greenstar, my glory or my undoing

Never before have I invested in a company whereby the operating results/fundamentals have been so disconnected from the stock price for such a long period of time and to such a large degree. In the CFA level 3 program there's a section which describes "chronic inefficiencies" of the market whereby there sometimes can exist a mispricing of an asset that can last for a long time due to either structural or behavioral factors. Greenstar is clearly suffering from this and it's making me suffer.

When I first bought the stock just over a year ago at .50 it was trading at 2 times 2012 earnings. A ridiculous discount given how clean the balance sheet was and how constantly profitable the company has been. The knock against the company is that it's a reverse takeover Chinese based company, the same type that Sino Forrest was and so automatically and idiotically, many investors view the company as having high scam risk even though the company has done nothing in any way suggest it is so and they have a pile of cash in the bank. It's no different than labeling me a mafioso just because I have Sicilian blood. In 2013, to combat the skepticism, the company started paying an enticing dividend, added several Canadians to the board. and then hiked the dividend by 50% in the summer. The company also continued to post excellent results with growth in profits likely to be about 35% in 2013 vs 2012. The Canadian dollar has fallen significantly vs the RMB which added further to equity via currency translation gains. I estimate that book value to be about 1.90/dilulted share as of the end of 2013. So, given all of these very positive developments in 2013 you would think that the stock would get a more respectable multiple than a measily 2 times earnings by year end...well, you thought wrong....or at least I did. While the stock price did go up from a year ago, it still trades at 2 times earnings. In the summer it did appear that the stock was finally getting some well deserved respect but that didn't last long and it's been a rather frustrating and agonizing slide since then. I talked about how there is an overhang from what appears to be 3 sellers out there, one in particular that is trading under the annoymous broker. I dealt with a similar situation with hwo.to last year whereby the company has done nothing wrong operationally speaking, yet the stock price drifted lower and lower for months to very undervalued levels primarily because of one asshole who traded out of UBS relentlessly pounding bids. When this happens not only do you get very frustrated but you start to wonder if someone knows something that you don't and your frustration turns to worry and doubt. Eventually, after 5 months of torture, the stock broke out of its funk and eventually soared to significant new highs which means those who were relentlessly selling knew fuck all, but I'm sure there were lot of people who either threw in the towel during those 5 months of hell or sold very early in the recovery thinking the stock would retrace again. 

As far as I can tell, there is nothing at all that suggests something is wrong with GRE's business. In fact, it's the opposite. The company just announced major expansion plans and I conservatively estimate the company will be making $40M in annual profit in 2015. Put this into perspective with the current $26M market cap of the company.... it's fucking beyond asinine, beyond insane. Now, there is going to be a private placement closing next week which will bring about a dilution to existing shareholders. I'm not thrilled that they are doing it at such a cheap price but they need Canadian funds to do an acquisition and the expansion they have planned will require all of the cash they have in the bank plus an increase in working capital. But even with the increased share count due to the PP, I conservatively estimate that fully diluted EPS in 2015 will be at least $1 which means the stock price is trading at 0.84 times 2015 earnings!  How the fuck can the stock price not soar after this news? Anytime the stock tries to pop on good news, sellers come in aggressively hitting bids knocking it down again and the buyers back off. What are they thinking? They can easily fetch higher prices if they wanted to. They are such fucking idiots. 

At some point, I figure that the market is going to give GRE the respect it deserves. I said this at least a few times during the first year when I bought hwo.to. It took 2 years after I bought for the market to finally come to its senses and so I wonder if it will take the same amount of time with GRE....it may take even longer given that the company is Chinese, but there's only so long the market can penalize a company that keeps producing these kinds of results while consistently raising dividend payments as the company grows, and speaking of which, based upon the growth that's to come in 2015, I think there's a good chance of  another 50% hike in the dividend for 2015 which would be announced this summer if history repeats. 

In the meantime I may very well continue to suffer and be frustrated beyond limits. The only way I can combat this is to simply not look at the stock price day to day and only monitor fundamental developments. I can't second guess myself thinking that maybe someone knows something I don't. I've made my move and I'm sticking with it unless there's clear evidence that something is wrong.  I said this once to someone; as a value investor the best strategy is to buy a cheap stock you've done your homework on and have strong convictions, turn off your computer and go live in a cave for a year before checking the price because it can take a long time for the market to recognize the value that's there.  And yes, these extreme value disconnects CAN and DO happen especially with microcap stocks. The market is often NOT effecient and so it's wrong to assume all cheap stocks are "cheap for good reasons". Case in point is with bev.to. In early 2009 the stock was trading at 0.23 when they announced a major government contract which pretty much guaranteed at least 0.50-0.60/share in earnings. What did the stock do after the announcement? Fuck all and it did fuck all for several weeks later and only really started moving when the money from this contract actually started coming in. The stock price got as high as $3.45 just over a year after the contract announcement. I bought at 0.50 only because I discovered it a little late. Why was the market so slow to react to such good news? Because the company nearly went bankrupt  a couple years prior, plagued by scandal from its former CEO and so nobody trusted the company anymore even though they restructured and got rid of old mgmt. A similar thing happened with hwo.to. The former CEO Jed Wood nearly ran the company into the ground in 2008. They booted him out and restructured but despite producing great results early on, the market did not give the company any benefit of the doubt for years due to its history and its operations in PNG which was deemed risky, but eventually it simply became too hard to ignore the strong balance sheet and great results the company was delivering and the company finally got it's due.  The lesson I learned and profited fro is that in the LT, good financial performance gets recognized by the market one way or another and there's only so long unwarranted negative sentiment can hold a stock back, but I also know the journey a shareholder must take to see this through is filled with frustration and doubts galore. In hindsight the best thing to do is like I said earlier, don't look at the stock price for long periods of time and simply focus on the results that are being delivered and other fundamental factors. 

Now I just need to take my own advice before I lose my nerve. I may not post for a while unless I find some new stocks to buy which I'm currently on the hunt for.