I bought 80,000 shares of Top Glove at $0.96 for a total investment of $76,800 SGD. The stock price has dropped to $0.76 giving me a loss of 20% or $15,300. 

The stock price went to a high of $3.00 in Feb 2021. It has since dropped 75% from the peak.

Someone asked me - will the stock price continue to drop?

I looked at the financial figures and price chart for the past 5 years. For the financial year 2019, the EPS was $0.05 and the stock price was $0.60. 

If the stock price and profit margin for 2022 dropped to the same level as 2019, the stock price would fall to $0.60 (PE ratio of 12 times).

However, this would assume that the covid pandemic has completely disappeared. This is unlikely to be the case. There should still be demand for gloves for the handling of covid cases, although at a level lower than 2020 and 2021. 

There is a detailed report on the demand for PPE equipment for the period 2021 to 2025. It does project the demand for PPE to drop to the 2019 level plus increase for normal demand. However, it suggest that the demand for gloves will be higher than for masks.

The demand for Q3 of 2021 for Top Glove shows revenue had dropped to $2 billion. If this is annualized to $8 billion, it would be twice of the 2019 level. 

However, it is likely that the demand will continue to drop. 

I would estimate that the revenue for 2022 would be $6 billion or 50% higher than for 2019. If the profit margin is the same as for 2019, it would imply an EPS of $0.75 or a stock price of $0.90 (based on the same 12X multiple).

At the price of $0.90, I would still see a loss on my investment. 

There is still the uncertainty about over capacity, which may cause the margin to be squeezed. However, the weaker producers may exit the market and the stronger producers, such as Top Glove, should fare better. 

I will hold on to my shares until the price reverts to $0.90 or higher. 

Note - this is a personal observation. It is not investment advice. 

Tan Kin Lian