Wednesday, May 28, 2008

Is AirAsia deserves to be a penny stock?

AirAsia dropped to $ 0.99 intra-day low but closed at RM 1.01. The nagging question is this: will you pull out your wallet and buy this stock? It's a very tricking question to answer, right?

Valuation model will breakdown right here because of "abnormal" and uncertain fuel cost. How much AirAsia worth if fuel cost is US$200/barrel, US $ 150/barrel, US $ 100/barrel, US $ 70- US $ 80/barrel? Let's say fuel cost to return to acceptable range of US $ 70 - US $ 100, will you pay between RM $ 1.30 - RM 2.00 for the stock?

Forget about analysts' report because no one will want to stick out their necks. Everyone will want to take a safe route - downgrade it to Neutral, if the financial results confirm is bad, then downgrade it to sell.

Now ask yourself these questions:

Will you still take AirAsia if your round trip from Penang - Kuala Lumpur fare increase from RM 190 to RM 266/person?

Will you go to Macau if your round trip(KL-Macau) ticket cost you RM 1,358/person? Current price is RM 970 for a round trip.

Go to LCCT airport and ask a few more people, let's see what are their responses. This will give us some feel of how much we are willing to pay for AirAsia. Buffet seated at a restaurant counting how many people still using their American Express credit cards during salad oil scandal, to get a feel whether the company worth buying.

Desperate times need desperate measures - may I also say crazy times need crazy valuation method. Have a nice day!

1 comment:

Hurstian said...


Good suggestion...turun padang and ask the public.