It fell by 30%—how far is it still from being cheap?

When a stock falls by 30%, many people’s first reaction is: 'Is it cheap now?' If they already hold the stock, the question often shifts slightly: 'It’s fallen this much—would selling now amount to cutting losses?' These two questions may seem different, but they stem from the same misconception: treating past price as intrinsic value, and treating an already-occurred decline as justification for future upside. A price drop only signals a change in market price—it says nothing directly about whether the asset has become cheaper. For instance, if a company’s share price drops from ¥100 to ¥70, it could reflect excessive market pessimism—or it could signal a permanent impairment of future profitability. The former is a valuation compression; the latter, value destruction. Though their price charts may look similar, the investment outcomes are entirely different. To assess whether a stock is truly cheap, at least two distinct questions must be disentangled: First, has the company’s intrinsic value changed? Second, does the current price imply sufficiently low expectations for future earnings? Focusing solely on the first risks mistaking a fundamentally weak company for a temporary victim of market overreaction; focusing solely on the second risks confusing low valuation with genuine margin of safety. The most common trap in markets is using historical highs as a reference point. If a stock once traded at ¥100 and now trades at ¥70, ¥70 may *feel* like a 30% discount. But that ¥100 peak may have been built on overly optimistic earnings assumptions, loose liquidity conditions, or even a transient thematic premium—none of which are sustainable. If the company’s profit center has genuinely shifted downward, ¥100 is not a value anchor but merely an outdated price requiring re-evaluation. Valuation metrics suffer the same illusion. A P/E ratio falling from 40x to 20x appears to halve valuation—but if earnings expectations have simultaneously deteriorated, or if profits are entering a structural downturn, the 20x multiple may hold no more appeal than the prior 40x. When the denominator (earnings) is worsening, even a seemingly low numerator (price) may offer only a fleeting illusion of affordability. That’s why the statement 'It fell by 30%' carries almost no analytical value on its own. It tells you nothing about whether the decline stems from valuation contraction, earnings downgrades, industry cyclical reversal, policy shocks, or deterioration in corporate governance and business model viability. Different causes demand different research approaches—no single yardstick fits all. The adjustment in China’s liquor sector in 2013 serves as a case often oversimplified by later observers. At the time, the industry faced simultaneous shocks—including the plasticizer scandal and government restrictions on official consumption—triggering steep declines across both the sector and leading companies. Markets initially interpreted this as a collapse of the consumption-upgrade thesis. Yet the companies that ultimately rebounded did so by rebuilding their profit centers through brand strength, channel optimization, and cash flow recovery—not because all liquor firms were equally attractive then, nor because 'the deeper the fall, the surer the rebound.' Even within the same industry-wide correction, firms’ capacities to recover varied significantly. The 2021 transformation in China’s after-school tutoring sector presents a contrasting scenario. The 'Double Reduction' policy fundamentally altered the industry’s operating premise—redefining revenue sources, business boundaries, and even the underlying asset value of education companies. Firms like TAL Education Group experienced sharp declines far exceeding ordinary valuation corrections. Investors who continued applying pre-policy earnings models to these companies risked falling into a dangerous illusion: the lower the price, the cheaper it *seemed*—even as fundamentals had been structurally rewritten. Placing these two episodes side by side yields a straightforward conclusion: some declines reflect cyclical or emotional swings, while the enterprise’s long-term earning power remains intact; others signal a rupture in the old business model, rendering prior valuation benchmarks obsolete.

How exactly is fair value change determined—and on which side does it belong? (눈_눈)?

(I) Valuation Method In both 2023 and 2024, the Company performed goodwill impairment testing using the 'fair value less costs to sell' method. Fair value was determined using the market approach—specifically, the listed-company comparison method. (II) Key Parameters and Their Rationale 1. Value Multiples Value multiples typically include profitability-based multiples (e.g., P/E), asset-based multiples (e.g., P/B), revenue-based multiples (e.g., P/S), and other specialized multiples—such as EV/EBITDA or EV/S. When selecting an appropriate multiple, the following factors were considered: (1) Hesheng Agriculture has relatively large total assets, with tangible assets accounting for approximately 50% of total assets—indicating a capital-intensive industry where the P/B ratio is particularly applicable; (2) The rubber industry exhibits strong cyclicality due to international trade dynamics and rubber-tree production cycles, causing pronounced fluctuations in revenue and operational performance across peer firms. As a result, revenue- and profit-based metrics tend to be less reliable than asset-based metrics. Accordingly, given Hesheng Agriculture’s asset profile and its industry context, the impairment test adopted an asset-based value multiple—namely, the P/B ratio.

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Balchem Corporation shares trade below intrinsic value following a 47% rally, backed by record sales, a new $650 million credit facility, and share buybacks per DCF analysis.

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