Don’t ignore preservation of capital

Jan 22nd, 2010 – Comment

EIL has taken some positive steps towards restructuring its affairs by selling assets and cutting costs but what they really need is to sign some new contracts and increase the volume of cash flowing through the company.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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empire

Lou ,

What are your thoughts about EMPIRE INDUSTRIES (EIL-X)?  I purchased at 50 cents, thinking this is infrastructure related and they had a big project in BC on the go.

Bill

 

Hi Bill,

Your buy of Empire Industries Ltd. ( EIL TSX) at $0.50 is currently underwater so at this point its a question of whether you can get even. EIL has been undertaking an aggressive restructuring given that their revenues have tanked over the last year.

 

eil

The three year chart tells the tale of a huge retreat in the stock as the recession took the winds out of the economy. 2009 was a bad year across the country with gross domestic product falling by approximately 2.9%. Having bought the stock at $0.50 you probably got in during 2008 . The B.C. deal  you mentioned was announced in February of 2008.

What you can see from the chart is at least the downtrend has been broken with EIL getting a bounce off the $0.06 rock bottom in late December of 2009. One thing to keep in mind is that volume has been light. Yesterday 59,000 shares traded yesterday while average daily volume for the last 3 months has been 57,131. I would like to see more volume to  more strongly confirm the move up.

The chart also indicates that there is resistance at $0.20 and its going to take announcements of new contracts to get the stock above these levels.

The Company reported its Q3 results for the period ended September 30, 2009 on November 30th. The top line says it all. Revenue down 64.6% to $20.3M. No matter how you slice it cash is the lifeblood of every organization and EIL is bleeding out. I am sure there are those that want to lay the blame at the feet of management, which may have some merit, but you would have to agree many companies got side swiped in the last two years.

eil2

The six month chart provides a closer look at the bounce off the rock bottom and the thin volume that has accompanied the rise. 

EIL has taken some positive steps towards restructuring its affairs by selling assets and cutting costs but what they really need is to sign some new contracts and increase the volume of cash flowing through the company.

Next time you own a stock that is taking a bath try to sell earlier and preserve  more of your capital. At this point you may as well let this horse run and see if there are new contracts in the barn.

Happy Capitalism!

Categories: Infrastructure
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