Should You Buy Eureka Group Holdings Limited at this Share Price?

What happened to the BKL share price?

Eureka Group Holdings Limited [ASX:EGH] picked up an attractive 8.89% by early afternoon today. The stock was trading at $0.49 a share. The Aussie market was led higher by major miners despite a fall in the iron ore price. The market has now locked into the belief that iron ore has bottomed.
Iron ore is trading at US$60 a tonne in the current month, this is a significant improvement on the US$46 in early April. However, further upsides in iron ore are limited in 2015. A forecast of US$65.4 per tonne is reasonable for the year. Investors will likely overbuy the mining sector in 2015, and we will see one or more corrections for the sector in 2015.

Why did this happen to EGH shares?

Eureka is in the business of property management for senior independent living communities in Australia. The company’s stock price crashed into the ground in the Global Financial Crisis and has not been able to recover its value until recently.
With very few analysts covering the stock, it currently has an average rating of ‘buy’. Estimates for the company’s future revenue are positive. The price momentum over the last two years has more or less reflected the optimism in the stock.
On the fundamentals, I would quote my college Terence Duffy: ‘Results from the company’s half yearly report released in late February were positive, very positive. Net profit after tax for the six months up 80%. Do note how the share price has reacted to the positive February results. We could then expect further positive news to come from this company.’

What now for EGH?

In terms of the company’s fundamentals, Eureka is aggressively expanding its asset base. In another word, the company is in a growth stage. It is therefore appropriate for investors to classify the stock as a growth stock.
EGH has been a great trade in the five last years. However, it has a history of producing large sudden moves in the past. Buying EGH requires some degree of diversification. Leverage is not recommended for EGH.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor


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