Imagine losing 4.4 Billion Dollars within a day…
or one of your vested stocks plummeting 28% within 24 hours.
Because that was exactly what happened to Kraft Heinz last Friday
when their share price dramatically plunged from USD48.18 to a staggering USD34.55 within the same day.
But who could blame the shareholders?
The company reported a shocking USD12.6 billion loss within just 3 months end of last year
AND rightly slashed their dividends by 36%.
To top it off, the company was also served with a subpoena (a writ to be present in court) following an investigation into their accounting practices.
Now if you’ve ever kicked yourself for investing into this company or a company in a similar situation,
you can now sleep peacefully at night knowing even billionaire investor Warren Buffett isn’t spared from experiences like these
because Buffett’s company, Berkshire Hathaway is one of the majority shareholders of this company, owning 26.7% of their total outstanding shares.
The more important question now is,
Is this an opportunity for investors to buy? Or to buy more?
We turn to our trusty smart investing platform, WealthPark for answers
or more specifically, the WP Rating.
Having only one star, it shows that there are existing investment risks due to potential aggressive accounting.
Looking deeper into the 13 assessment criteria, we also saw that the Quality of Earnings are in red.
What is Quality of Earnings exactly?
According to Investopedia, Quality of Earnings refers to the amount of earnings attributable to higher sales or lower costs, rather than artificial profits created by accounting anomalies or tricks such as inflation of inventories or changing depreciation or inventory methodology.
In layman terms, this simply means that whatever profit that was booked, have yet to be collected in cash.
On top of that, Kraft Heinz’ Goodwill and Intangible Assets, Inventory Management, Payables Management are also in the yellow, highlighting moderate risks.
All these items call for further investigations and could potentially be some of the items that SEC are already looking into.
In conclusion, as Berkshire Hathaway is one giant of a company, we believe that Warren Buffett, being its owner, would have made different considerations for this investment due to the company’s sheer size.
Kraft Heinz after all, only makes up 8% of Berkshire Hathaway’s total equity holdings.
And let’s face it, being Buffett, he could also have been dealt different cards by the company as compared to your average investor.
According to the management of Kraft Heinz, they already have plans to turn this around.
However, looking at WealthPark and the items highlighted above, this company still seem to exhibit high risks
and we would personally side bench this company for now and look for other investment opportunities.
If you still feel uneasy and worried, we recommend that you watch “How to Keep your Mind Clear When your stock drop more than 20%”
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author(s) involved in the writing of this piece do not have current vested interest of the company. Please consult a competent professional for expert financial, or other assistance or legal advice.