Eternal had another good quarter. Today the stock was up 13%.

SmokeStack Puffs
A lot of cigar butt type stocks that sell for net current assets are barely good enough for one last puff on the cigar. ETLT is more like a smokestack. Year over year revenues were up 27%. The E-Sea breast cancer early detection revenue was up 55%. Net income for the six months ended June 30th is up to $.07 a share vs $.05. Cash and cash equivalents were at $26 million. Working capital increased as well. Shareholder equity grew, operating cash flow grew year over year. They generated free cash flow of $7.4 million. Free cash flow would have been even better but they invested just over $4 mil in a long-term investment. They are probably going to set up shop in the US as well. Here is something good and maybe not so good that caught my eye.

"The Company has a cash and bank balances of $26,223,055 and short term liquid investments of $15,738,117 which is more than sufficient to cover its PRC operations."... "However, if the Company is to expand outside the PRC, as it anticipates doing, or pay its non-PRC obligation, it will have to sell additional shares of its stock or borrow funds from third parties. Unless it is able to either borrow funds or sell additional shares, it will have insufficient resources to carry out is business objectives outside the PRC for the next twelve (12) months. " (Not great but not really bad news).

They just started a buyback recently. It seems hard to believe that this stock still sells for less than net current assets less all liabilities and preferred stock. I guess management feels the same way so they are doing the buyback. I crunched NCAV as just over a $1 a share against a share price of $.68. Unsexy businesses people do not really understand or follow can carry a discount many times just because there is no interest. I do not know what the next 5 years holds for Eternal but I know that its performance had not been recognized and the business sold for a huge discount and still does.

The China Dilemma
It is really hard, with many companies to know what the future holds because of the competitive landscape. The best you can do is make informed decisions and buy with some margin of safety. The investor should not care about stock price because as Buffett and Graham say you should have a strong thesis for why you bought. If you buy a business you are confident with and buy at a good price the stock price will eventually follow the business. Ideally, you could go for years without even knowing the stock price! Short-term volatility is of no consequence. This also makes you "focus" on the company and know it like the back of your hand. I still think there may be a lot of value here as they continue to grow. My earlier piece on Eternal Tech ETLT.

The Current Situation in the US Equity Markets

On another note. Here is something I wrote in an online group. It is in response to someone talking about cash being the best safe haven in the down market or to protect against a 10% correction.
"The problem with going mostly to cash is you never no when the market is going to switch into bull mode and your sacrificing ignoring the best asset class in history that has had the highest returns, stocks. I'm in for the long term. It is hard to predict stock prices let alone the market. The best anyone can do in my opinion is buy companies and or indexes that sell for less than their intrinsic value."
I mentioned Fortune Brands which outperformed the market during the last recession.

disclosure: long ETLT