Aselsan is a company operating in the defense sector. It produces software and electronics. It's main customer is the Turkish Army. In the beginning of 2019 its share price was around 24₺ which was very low price compared to its sales, earnings, margins and revenue expectations. In 2019 the company management was expecting a 40% net earnings increase and at that time its P/E ratio was around 10. It had almost no debt and 3 billion of net cash. Its backlog was constantly increasing and the company management declared that they will continue with the investments, not to mention the 2500 engineers in firm's R&D department which is the biggest R&D department among Turkish companies. Also the company was ranked 54th in "2018 SIPRI TOP 100 Arms-producing and military services companies" list (in 2017 was ranked 62th). You could check last report at 2018 SIPRI Report.
So I placed 30% of my capital in this stock(1/3 weight in my portfolio). It seemed great investment. However the stock ended the year with price at 20.91₺, which is a drop of around 15%, 2 days earlier on 27 December it was 19.64₺ (down -20% compared to its price on 1 January 2019).
I still hold the stock and more - I increased the amount, I bought more in the beginning of December and at that time it constituted 48% of my portfolio. My other stocks performed well and thanks to them my portfolio at the end of 2019 was up +38.31%. Am I happy about it? Not much.
So why I let this stock to drain my portfolio performance? The answer is: I was in love with the company and I could not hit the sell button. Here you may wonder: why a such good stock performed that bad? The reasons are few, all were known by me by the way.
- Since the main customer of the company is the government, the firm is heavily depended on government payments. In 2018 Turkey had experienced a financial crisis and the income of the government had dropped significantly and the government started delaying its payments. So the company had positive and increasing sales but zero or negative cash flows.
- The firm continued with the investments, which requires significant amount of cash, that increased its debt and it hit 2 billion Turkish Liras. Also it's cash and equivalents dropped to 1.7 billion at the end of the third quarter.
- The issues of Turkey with USA. The firm is selling products to US companies and the rumors that Turkey will be kicked out of F-35 project kept the stock under pressure.
After the first quarter results announcement the right choice was to make an exit from the stock. The results were telling me that something is not going well, however I loved the company and I stayed in. The second quarter's results worsened the status, however I have continued to hold the stock. As I said above in the end of the third quarter the company moved to negative territory of "Net Cash". Also I would like to add that technical analysis was giving "sell" signals all the time. There were many good and cheaper stocks and with the falling interest rates they were excellent buy opportunity but when you are in love with a company you just get blind and continue believing that things will change and get better. When you fall in such state the right thing to do is to think that you do not hold any stock and are full in cash. It will help you think clearer and make better decisions.
As a conclusion I could tell that I still love the stock and I think that it will perform better from the index(XU100) in the next 2-3 years. My mistake was keeping the stock for months when there was no sign that it will start an upside movement. The right thing was to invest in stocks having better stories and keep an eye on Aselsan waiting for the right entry price.
