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CATEGORY Fundamental analysis

Why Fundamental Analysis is an Essential Tool



November 27, 2017

Sometimes, even technical analysts are a stubborn bunch.

Just as fundamental investors like to laugh at technical analysis, technicians laugh at the absurdity of investing just on fundamentals. It’s why it’s always best to combine both schools of thought. What one may miss, the other may catch.

Look at small cap stocks, for example.

Small cap stocks are still one of the best bets on the market.

Trio-Tech International (TRT) is a perfect example.

It’s a diversified business group with interest in semiconductor testing services, manufacturing and distribution of semiconductor testing equipment and real estate.

In March 2015, we found the stock trading at just less than $2.80 a share after it fell from a high of about $5.50. While technicians would have left it for dead, fundamentals told a different story. At the time, even as the stock sank, earnings were just beginning to show signs of improvement. Yet, the Street ignored it.

In short, the fundamentals were great. Again, though, investors ignored it.

Unfortunately for those that ignored it, the stock just exploded to a high of $8, returning potential gains of 190% after reporting that its first quarter net income doubled to 16 cents a share on 22% growth in revenue.

For the first fiscal quarter ended September 30, 2017, revenue increased to $10,945,000 compared to revenue of $8,971,000 for the same quarter last year. Manufacturing revenue increased 29.8% to $4,765,000 for this year's first quarter compared to $3,671,000 for the first quarter a year ago.

Gross margin for the first quarter of fiscal 2018 increased 17.0% to $2,760,000 compared to $2,358,000 in the same quarter last year. A change in product mix at both manufacturing and testing services reduced gross margin to 25.2% of revenue, compared to 26.3% of revenue for the first quarter last year.

TRT CEO, S.W. Yong, Trio-Tech's even noted:

"Trio-Tech's excellent first quarter financial results speak for themselves: Revenue increased sharply in each of our business segments, driving commensurate gains in operating income, net income and earnings per share versus the first quarter of last fiscal year. Our Singapore and Tianjin, China operations were especially strong, and business conditions there currently appear likely to remain favorable. This was our strongest quarterly financial performance in quite some time, a tribute to the hard work and dedication of Trio-Tech's entire team, and we are optimistic regarding the remainder of the year."

It again proves that fundamental analysis is essential to your success.

Just because a stock may appear to be a technical mess, never ignore the fundamentals, especially when they looked as solid as they did for TRT in 2015.


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