Value Investing Increase in inventory following a rights issue (non-distressed company) |
| Increase in inventory following a rights issue (non-distressed company) Posted: 29 Nov 2018 08:30 AM PST I'm looking at this rather smallish manufacturing company. There was a rights issue in Sept 2017. Basically, their inventories hovered around the $30mil region for the past few years leading to the rights issue. Their quarterly revenue was also around the $30mil region. Now, one of the reasons for the rights issue was for cash to be used to purchase additional raw materials etc. For the quarter ending Dec 2017, the inventories were still normal at $30mil (the injection from the rights issue would have come in somewhere in Oct 2017). By Mar 2018, this was at $44mil, and by June 2018 it was at $59mil. For the quarter ended Sept 2018, the inventory stood at $60mil. Thing is, amid all this, revenue hasn't really grown. Heck, in the quarter ended Mar 2018, revenue dipped. But since then it has picked up to the same level as last year. My question is, why are the inventories ballooning (all types - raw materials, work in progress and completed goods)? Is it a bad sign that inventories are rising but the sales aren't catching up? Or could management be on to something here? I appreciate if anyone could share any ways to analyse this situation better. Thanks! [link] [comments]  |
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