TDG, TransDigm Group Inc.

tdg feb 24 2013 btdg feb 24 2013 s

Once again, for pedagogical purposes, we repeat the discounted cash-flow formula. It is cash-flow / interest rate in its most simplistic form. That means that when interest rates, that is the discount rate, starts to approach zero the value of an income stream goes to infinity. Ergo this stock still has a lot of potential were it not that the company has a B+ rating, not for its size but zero is just not realistic. Still this company has embraced all the hot financial techniques to make the best use of the present. It has paid out special dividends to the tune of about $20 over the past year or so and has entered into loan arrangements that allow it to make those payments. It has very little organic growth but, so far at least, has made up for that by multiple acquisitions. It’s products are in the aerospace sector, most of which have a quasi monopoly position in their respective fields. They have it all covered except QE-forever.

      The count is not perfectly clear but it would seem to us that the risk of outstaying your welcome is now disproportionately larger than missing the boat on a few extra dollars. After a move from $20 to $150 the risk profile is now decidedly asymmetric in favour of the downside. Both the RSI and MACD are ringing warning bells. Whatever happens in the future, our only regret will be that we did not buy this company earlier.

    We suspect that the proper count would be something like 1-2, 1-2, 3, 4, 5, 4, 5. A drop at least to about $110 would be consistent with that.