Double Dragon Properties (DD) is right now the most highly chased stock of day traders and investors today. I envy those people who got in early and had taken huge profits.

Just imagine how much money would you make from 5,000 shares at an average price of Php 20.00 if it’s sold at its high of Php 80.00? That would be Php 400,000.00 or a 400% gain in just a matter of hours.

But then again, if there are people who made money, there are also people who lost money and I feel sorry for them.

I observed how the stock rose and fell so fast these past few days making the fundamental and technical analysis almost irrelevant. Some long-term investors also jumped into the rising dragon even if the stock is already trading at 300x earnings exposing them to a very high level of risk.

​To put it in a perspective, it’s like you’re buying a food cart business worth 30,000 pesos that only gives a net profit of 100 pesos in a year.

Almost all analysis I see about DD is on the technical side and rarely on what the fundamentals really say.

I did my homework to find out if DD has really sweet fundamentals that can sustain what the market is pricing it today.

So here’s my Double Dragon stocks review.

DD is the real estate investment arm of Injap Investments Inc. established on 2009 and was originally registered in SEC as Injap Land Corporation.

DD is a 50/50 joint venture of between Edgar Sia II’s Injap Investments Inc. and Tony Tan Caktiong’s Honeystar Holdings Corp.

DD has 6 subsidiaries namely Double Dragon Sales Corp., Double Dragon Property Management Corp., DD Happy Homes Residential Centers Inc., DD-Meridian Park Development Corp., Citymall Commerical Centers Inc. and Piccadilly Circus Landing Inc. These subsidiaries are the ones that puts money in the company.

DD is targeting to accumulate 1,000,000 sq. meters of leasable space by 2020 across provincial cities through its “CityMall” mall chain brand and two major commercial projects namely DD-Meridian Park and Jollibee Tower.

I want to know the company’s sales performance for the past 5 years so I looked on the total sales they have made through their real estate and rental business.

Total sales grew at a rolling CAGR of 21.85% from 2011 to 2015. The bulk of their sales comes from the real estate inventories.

I also noticed that the rental income is also starting to gain traction. Rent income grew at a rolling CAGR of 114.72%. Overall, even with the ups and downs, the total sales is on a rising trend.​

As sales continues to grow, so are their real estate inventories. From 2012 to 2015, DD grew its inventory at a rolling CAGR of 50.96%. Increasing sales and inventory means we can expect a higher projected profit in the future.

When sales and inventory increase, I would also expect that Selling, General and Admin Expenses would increase. Most of these expenses came from marketing, salaries & wages and from taxes & licences.

It is also notable that SG&A expenses doubles every year and it has grown at a rolling CAGR of 89.65% in the 5-year period.​

I computed the SG&A to Total Sales from 2011 to 2015 and I found out that the expenses is good in relation to the sales from 2011 to 2015. But on 2015, Total Sales amounted to 758 Million compared to SG&A Expenses of 541 Million.

In my opinion, DD should cut down on SG&A expenses or it must increase sales to compensate for the expenses.

Retained Earnings looks good. It’s increasing at a rolling CAGR of 88.79%.​

And so does Return On Equity.

The Shareholder’s Equity is also increasing.

At the end of 2015. Assets have grown to 27.763 Billion pesos while Liabilities has also grown at 19.118 Billion pesos. The Shareholder’s Equity from the Parent Company is now at 2.752 Billion pesos compared to 2012 which has a total of 472.462 Million pesos. That’s a CAGR of 55.37%. It sure has grown so fast.

Analyzing all of these charts and figures gives me the conclusion that the company is doing good. Their increasing sales, retained earnings and consistent high Return on Equities make this an ideal company to invest in. But looking at the cash flow statement, it tells a different story.

Here’s a chart I made to give a quick view how cash flows from this company.

To quickly explain these figures presented, all I can say is that the money raised by the company on its financing activities are being used to fund the operations and investment activities of DD. In short, the company is taking more debt to continuously operate and invest.

I noticed that the cash flow from operating activities is negative from 2012 to 2015. This is bad because this tells me that the company cannot cover operations by just selling and renting out real estate.

Maybe one of the reasons why DD is bleeding cash is because of high SG&A expenses or a poor debt structure. I have shown that SG&A expenses has risen tremendously from 2011 to 2015 so that may be one of the reasons.

As for the debt, I’ve looked into it and plotted a chart as shown below.​

DD started issuing notes last 2013 and the proceeds from the sale of these notes were used for capital expenditures and operations.

You can also see the cash flow from financing activities from 2012 to 2015 the net cash that came in from the company as a positive figure. This means that they are taking on debt. This is not entirely bad because I also noticed that the cash flow from investing activities is increasing every year.

They are also investing the money they borrowed. So to generate a positive net income, they have to invest that money and they are doing a good job at it.

To prove that, look at the Revenue and Net Income, it’s increasing yearly. Their investing on their real estate portfolio to produce inventories. More inventories means more real estate to sell. More sales means higher income.

Revenue is increasing at a CAGR of 13.70% and Net Income by 61.20%.​

By 2020, we expect all Citymalls to be built at that time. These malls will bring a lot of revenue in the future. Then they can now start paying their debts.

When that happens, I think that’s the time that DD will start to have a positive cash flow but until that time comes, the company will continue to bleed money and take on more debt to finance operations.

I can say that DD is no longer trading at an attractive valuation. At Php 58.55 a share as of today, it’s already trading at 230x earnings (TTM). Investors are very bullish on the earnings expectations of DD that’s why almost everyone jumped into the trend.

If you want to ride the momentum, just invest and trade this stock with caution if you don’t mind the risks involved.

Happy investing!​