Toshiba: Time to Buy?

On December 28th, 2016, Toshiba’s stock plummeted 20.4%; the largest fall allowed on a single day. This, after the stock had risen almost 80% in 2016.

toshiba1

This would not be the first time a giant corporation would see its stocks nosedive after a massive scandal but we’re going to ask a question that might seem counter-intuitive: is it time to buy Toshiba stock?

The Backstory
toshiba2

In 2006, Toshiba bought Westinghouse Electric Company, a nuclear power company that owns and operates almost half of the world’s nuclear power plants, for $5.4 billion.

 

Almost a decade later we find Toshiba mired in a profit padding scandal. The summer of 2015 saw the CEO of Toshiba and several high ranking officials resign after it was found that Toshiba inflated its profits by $1.2 billion over a several year period.

At the time Toshiba claimed that Westinghouse was still a profitable company and even more profitable than when it was purchased.

Only a year later, Toshiba would announce problems at Westinghouse. The company’s assets were overstated and Toshiba would have to write off, basically announcing a loss, of several billion dollars.

This, understandably, sent shockwaves through Tokyo and the world. Just when Toshiba thought they were coming through the scandal relatively unscathed, this bombshell hit hard.

The final amount of the Westinghouse write-off: $6.3 billion. That’s the cost of 60 Boeing 737s.

Toshiba is even expected to sell of lucrative parts of its company to pay for these losses. It is looking to sell a majority stake (or even all) of its profitable flash memory chip business.  Needless to say, it looks like Toshiba are in a tough spot.
There’s a silver lining for us however, because there’s an entire philosophy of investing based around investing in solid companies that have hit on hard times – hoping that their share price rebound. It’s called distressed deep value investing.

Distressed Deep Value

Deep value investing is all about finding a bargain. The term is similar to value investing, where one searches for companies that are undervalued by the market, but is most often applied in scenarios where the companies in question are in a time of crisis or turmoil.

For example, after the Deepwater Horizon incident in 2010, stock prices for BP fell 50% in 50 days. From a share price high of nearly $60, BP would see its shares tumble to a low of $26.

6 months later, the share price would recover to nearly $50.

toshiba3

BP Share price, Mar 2009 – Apr 2012; source: Google Finance

Volkswagen saw their stock drop 23% after they admitted they were cheating on diesel emission tests for years. Since then, the drop has petered out. Volkswagen isn’t trading at the levels they were before the diesel scandal but the stock is actually trending upwards.

toshiba4

The problem with looking at a company’s stock after a huge, global scandal is that these companies are certainly not out of the woods when it comes to final litigation and legal decisions surrounding the misconduct. However, if a company’s underlying financials are strong, then there’s no reason they can’t bounce back.
Ideally, for a distressed deep value investor, you’d want to find a company whose reputation has taken a hit, but not its finances.
Is Toshiba ideal?

Buy or Bust

One of Toshiba’s ongoing problems is its corporate culture. Its profit padding is not just a one off event. It’s a culture of managers inflating profits so they look better to their superiors. The best way to achieve your goals when you haven’t actually achieved anything is to make it look like you’ve achieved profits. This is the culture of Toshiba. Obedience at all costs.

Ultimately, we want to know if Toshiba, where the stock is right now, can be a value buy.

First we need to put their write-off into context. How big of a hit did they take?

Toshiba’s gross profit in 2016 was $7.1 billion. This is down from an average of $15 billion over the 3 years prior to that.

The company’s net income makes for even worse reading.

2013: $1 billion

2014: $585 million

2015: -$300 million

2016: -7.4 billion

All of a sudden, that write-off looks like a big deal. Basically they are recording a loss that is nearly 20 times the size of their average net income between 2013 and 2015. Let’s also not forget: those 3 years are most likely inflated due to the accounting fraud at the company.
Even if Toshiba can turn this around relatively quickly, it looks like the business has already been suffocating for some time. The good news is that the company wants to sell off their lucrative chip business to offset their losses, and are seeking between $9 and $13 billion for it.

Except what does it mean for a company when they sell off an integral part of their business? The electronic devices & components division of the company accounted for 26% of the company, by sales, in 2016. The energy & infrastructure division, of which Westinghouse is a part, along with the electronic devices division together account for 60% of Toshiba’s sales.

There are question marks around Toshiba’s ability to bounce back from this, but if you’re willing to wait it out while Toshiba re-emerges from the ashes, the stock could have tremendous value. This will be a slow process, and further scandals could come to light.

Toshiba is a 140 year old company and the hope is that they take a step down to the minor leagues before coming back. If they do that, the stock will go up eventually.

Keep an eye on all the coming developments as they will give some hint as to whether or not Toshiba can make it out of this intact.

Save

January 2, 2021 Update: We have just announced our BEST STOCK NEWSLETTER of 2020 AWARD!

CLICK HERE to find out which stock newsletter was up 78% in 2020 (and whose 2019 picks are now up 113%).

*** Our Award for BEST STOCK NEWSLETTER of 2020 ALERT ***

Updated January 2, 2021

At WallStreetSurvivor, we subscribe to dozens stock recommendation and advisory newsletters. There is ONE newsletter that is constantly outperforming all of the others--The Motley Fool Stock Advisor.

Five of their 2020 stock picks have doubled and the average return of all 24 of their stock picks for 2020 is up 78%!

We have been tracking ALL of the Motley Fool stock picks since January 2016. That's 5 years and 120 stock picks. As of Friday, January 1, 2021 the Motley Fool's January stock pick (TSLA) is up 720%, their March pick (ZM) is up 172%, their April pick of SHOP is up 226% and their June pick CRWD is up 120%; and another two have more than doubled. In addition, 10 of their 2019, 12 of their 2018, 11 of their 2017, 15 of their 2016. Most impressively, over the last 5 years that we have been tracking every recommendation, their average stock pick is up 209%--tht means over the last 5 years their stock picks, on average, have TRIPLED!

Now no one can guarantee that their next picks will be as strong, but our 5 years of experience has been super-profitable. The important thing about the Fool stock picks is you have to buy them the day they are recommended because they usually pop 5-10% in the first 72 hours after the release their recommendation. You sure don’t want to risk missing out on their next pick.

Normally the Fool service is priced at $199 per year but they are currently offering a NEW SUBSCRIBER DISCOUNT that allows you to get theiir next 24 stock picks for just $99/year. HERE is the LINK to visit their New Subscriber Discount page.

CLICK HERE to get access to all The Motley Fool’s Stock Picks and their next 12 months of picks for just $99 per Year! 



GET UP TO $1,000 IN FREE STOCK

WHEN YOU OPEN A ROBINHOOD BROKERAGE ACCOUNT

Robinhood was the first brokerage site to NOT charge commissions when they opened in 2013. They just past 10,000,000 accounts and to celebrate they are offering up to $1,000 in free stock when you open a new account.

Here’s the details: You must click on a special promo link to open your new Robinhood account. Then when you fund your account with at least $10, you will receive one stock valued between $5 and $500. Then, you will get a link to share with your friends. Every time one of your friends opens an account, you will receive another free stock valued between $5 and $500. Click here to learn more about this Special Robinhood offer.

Claim your free stock NOW (before it’s too late)



One response to “Toshiba: Time to Buy?”

  1. Hey, Toshiba always thing out of the box and all comments by the toshiba everyone is all eras. Because this company is very reliable for product users by this info is very useful for me and I hope that as you.thanks for sharing with us and please keep posting amazing articles just like this. Apple Support