Easton Investments Limited (ASX:EAS)

Easton Investments is a stock that interests me. Here is an excellent summary of the investment case written by Chris Steptoe of DMX Asset Management. I will not repeat Chris's points here, but will add that I had a phone conversation with Managing Director Greg Hayes this morning.

I am writing this immediately afterwards and feel that as a consequence of our conversation I have emotionally bought into the company. I recognise the feeling from researching other ideas and think it is partly driven by the incremental work I have invested into the stock. This is dangerous as the amount of research I do does not make any difference to the value of the opportunity. It is a sunk cost. Although, if I do the work properly then it is likely that I will filter bad ideas out sooner.

This feeling of "buy-in" is stronger now than when I spend a similar amount of time reading about a company. This may be because I still find it slightly daunting to speak to management and so there is an additional emotional investment. Also, Greg was predictably bullish and it is easy to get carried away by the positive narrative. It is hard to maintain a sceptical stance when you are speaking with someone so optimistic and also much more knowledgeable.

Best to try and concentrate on the content of our discussion. Greg did not offer anything new above what I had already read to convince me that Easton has a sustainable competitive advantage or that it would become a much larger business. That said, the near-term looks positive and the price is attractive so I intend to purchase a starting position with the hope of answering the above two critical issues over time.

Comments

  1. This does look very interesting, however 2 obervations: 1/ i get very sceptical when a business talks "underlying earnings" which is pre both interest and tax. They have debt and need to pay tax. 2/ I'm not a fan of businesses holding debt in this industry.

    ReplyDelete
    Replies
    1. Hi, thanks for the input.
      1. Agree regarding underlying earnings:
      https://www.mattbrazierinvestmentdiary.com/2019/05/ebitda.html
      It is a black mark, but one I'm prepared to let go for now since even after taking into account tax and interest the business is profitable and modestly valued.
      2. I think the debt is manageable as it comes in about 2x my estimate for earnings after tax. What is it specifically about debt in this industry that concerns you?

      Delete

Post a Comment