How to value publicly-traded companies is a question where you will
get multiple answers. I am generally a big fan of discounted cash flow
models, while others prefer to look at EBITDA, book value, or PE ratios.
I mention this because I think how you approach the valuation question
will go a long way toward determining whether you see opportunity in
China's Lianhua Supermarket (0980.HK) (OTC:LHUAY).
I
don't think anybody will argue that Lianhua is a particularly
outstanding retailer, particularly as the market reacted quite favorably
to some recent changes in the company's management. I'm not sold on the
franchise model for supermarkets over the long run, and the company is
going to have to deal with quite a lot of competition in its core
markets of Shanghai, Zhejiang, and Jiangsu. If you value Lianhua by its
earnings per share, I can agree that there wouldn't seem to be much
potential here, but if you look at the cash flow the picture changes
quite significantly and Lianhua could yet be undervalued.
Continue reading here:
Very Little Seems Expected Of Lianhua Supermarket
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