Dart Group - And The Great Lesson It Holds For Investors

13th Mar '15 by Edward Croft

21 comments 17804 reads

Dart Group's massive move today (up 18% on a trading announcement) is a classic example of why rules based investing is so effective. Dart Group yesterday was the highest ranked stock in the UK market on the Stockopedia StockRanks system - the only stock in the UK to rank 100/100 on our blended scale of Quality, Value and Momentum factors. For those who hadn't noticed, it shot up today 18% to new highs.

Apart from a brief wobble after a profit warning last year, it's been right at the top of the StockRanks for the last 2 years ( as shown in the chart below) . Even before we launched the StockRanks, in late 2012 it was one of the top screened stocks on the 'Screen of Screens'. As a result a huge number of Stockopedia subscribers have gradually bought into it and benefited from its awesome price run up. Today we were humbled by some incredibly kind messages from subscribers.

It's so hard to buy stocks at new highs

For almost the entire run, investors have been reluctant to buy it - if you look back to 2 years ago in the FT, you'll find a great article by David Stevenson titled "Stock Screens to net the ones that got away". In the piece... David wrote the following:

One of my big regrets for 2012 was not having bought into a small UK-based transport group called Dart Group. Lots of quantitative and qualitative measures told me that the owner of the Jet2 airline and those Fowler Welch lorries was way too cheap. Yet, sadly, I found more interesting stories to chase and I let it get away – only to watch in horror as the price more than doubled.

He wrote this when Dart's shares were trading at less than £1.50. But they have since more than doubled again to reach £3.65. He hadn't let it get away at all... it was just getting started. There's probably no-one who understands the power of momentum as well as Stevenson, but even he must be startled by how much further it's run since.

55034d8e7c8f7DART_Share_Chart___Live_Cha

The rise has brought a near 400% gain for subscribers who first bought it when it showed up on the Screen…

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Tanglands

13th Mar '15

Sorry did someone once mention something about Friday the thirteenth !!!!!

AstonGirl

An Interesting article thank you Edward. I'm pleased to be reaping the benefits of Dart (LON:DTG) investments made 3 years ago.
I've now top sliced twice this year as the gains meant it exceeded my max portfolio size for a single stock; I intend to keep holding the remainder as I research the replacement

MichaelFBS

Thanks from me also I purchased Feb 13, Feb 14 and Jun 14 and I should have purchased on the dip down to 190. I won't be selling as I think there is more to come and again I think one of the things that has resonated with me in my learning process of the last few years is to ride ones winners (Google Buffett on buying Coke at $40 when it floated).

With oil prices set to stay low, the UK economy improving and a solid balance sheet I can see no reason to sell even if it represents 11% of ex cash portfolio.

Paul Scott

Readers of the SCVR got a pretty good steer from me that 187p was a good buying price, in my report of 26 Jun 2014. "At the current share price of 187p that puts the company on a PER of just 7.6 times. That looks a bargain to me" - See more at: http://www.stockopedia.com/content/small-cap-value-report-26-jun-2014-dtg-ptcm-craw-chrt-84296/#sthash.WqRjBGII.dpuf

Equally, readers having doubled their money in 9 months, and with the valuation now looking more full, I don't have any hesitation in saying that, for me, it would be one to now top-slice or sell completely now, at 365p.

I don't see anything particularly special about Dart that justifies continuing to hold it now that the valuation has corrected from too low, to about right, or maybe a little high. BLASH and all that!

14th Mar '15

It is a brave man who goes against Paulypilot(and I have nothing like his experience) but I would have thought there was some kerosene left in the Dart (LON:DTG) tank. My thoughts are:

- I doubt low oil has worked its way through yet. Would they not have hedged quite a long way out?

- divi is below 1% and very well covered

- the UK consumer is beginning to feel happier and that probably means higher holiday sales and if we have a summer like the past two...

- they have grown sales consistently since 2010 (as £EZJ) but being a quarter the size of EZJ and concentrating other destinations I would have thought they have room to continue to grow sales

- lots of cash

- lots of fixed assets.

- if the cash is there to buy new aircraft and they decide lease perhaps they could return cash to shareholders.

Negatives(from an investors point of view)

- it's an airline

- the fleet is old 22 years (versus easyJet (LON:EZJ) 6)

- so a lot of that cash I assume is depn of existing fleet

Anyway I am going to old for now but watch the nest very carefully!

Mechanical Bull

"Lots of cash - this doesn't really mean a whole lot for airline stocks as they generally receive cash in advance of services being provided. They can't just go and take all this cash and use it for capex or dividends.

I'll be top slicing DTG as I use a 7% position limit which has been breached. However, I will hold as long as the Stockrank stays high.

One thing in DTG's favour must be the weakening Euro. That must be stimulating demand.

Edward Croft

When it comes to dealing with winners, I think it's always a toss up between two of the most important rules of portfolio and risk management.

Running winners.
Rebalancing ( i.e. cutting back your position size on winners ).

The first rule ensures that you make the most of your good picks. The second rule makes sure you don't leave your portfolio over-exposed to unexpected stock specific set backs. Finding the right balance is key.

If an investor has quadrupled their position in Dart Group, they may be finding the stock has grown to 20%+ of their portfolio. That's a hefty position, so trimming the position size could be prudent. On the other hand, someone sitting on a year to date 25% gain might be more willing to give the position some wiggle room and let it run.

As ever, these things come down to personal circumstance and judgement.

Warren Buffett of course very prudently once said the key to making money in the market is to follow the following rules:

Rule #1 Don't lose money.
Rule #2 Don't forget Rule #1.

My own take is that if you are looking at your own portfolio and you are thinking of selling anything, sell your losers before your winners. It's a philosophy that ensures you don't get ensnared in the common and highly expensive mistake of loss aversion.

lightningtiger

This was one of my first shares that I bought when I first got Stockopedia. I can remember the nice graph steadily climbing from bottom left to top right on the screen. A few weeks later it hit my stop loss, so I sold it, and bought something else.
Since then I have been able to search out quite a few stocks that have doubled or more with using Stockopedia.

Thanks to Paul Scott battering Quindell shares as rubbish, I quietly noticed last December that the shares were about 6 times undervalued, so I bought some lots of them around 35p-50p & sold out at just over 100P. It took about 6 weeks.

Having compared Dart group with Plus 500, I am still sticking with Plus 500 and watch the dividends increase each year, and similar to Dart, both companies have hit new highs.May the compound interest effect win in the end with dividends re invested.

cig

Winner/loser is all PnL bias. One's personal PnL is (essentially) never an input in any investment's future performance.

"Don't lose money" is not appropriate at all times, if I sell you as many £1 tickets as you want that have a 1% chance of paying £1000 (and 0 otherwise), you'd be a fool not to buy them despite 99% of your tickets being losers.

dfr1

15th Mar '15

Interesting comments from investors in dart.as I have had good results keeping hold of easy jet for the last couple of years, I see no reason why both shares should not still out perform the market as oil prices continue to fall and the feel good factor in people's wages should filter down to more holidays being booked this year.

Andrew L

Edward,

I understand your reluctance to buy it because it is an airline. However, I think looking at sub-sectors helps here as Dart Group operates a budget airline as well as a package holiday business. Budget airlines have actually had a strong stock market performance in the long-term. Just look at Southwest airlines (the largest and first budget airline). Also I think I would view UK focused airlines as a UK consumer recovery play.

When I looked at budget airlines it seemed that they are cyclical (tend to fall further back in a downturn) but also outperform in the long-term. The issue with Dart has been whether it can survive competition from easyJet and Ryanair. The review's for Dart's brand, Jet2.com, on the website Trustedpilot were positive. Dart does use older planes though and seems to have a liability relating to late flights which it has to pay compensation on.

I think the overall investment case is positive because that Dart has generated significant value in the long-term and appears to have a strong and experienced management team.

PhilHofGrowYourDough

Well for me the time to buy it was in late 2012 when it was flagged as an excellent stock by Stockopedia and it broke out of its price trend towards £1. A classic QVM purchase. Personally I bought it in November 2012 (98p) and sold it again in April 2013 (£1.38) when momentum was lost and then bought again in May 2013 (£1.88) as momentum returned and sold again in November 2013 (£2.23).

I also bought it in July 2014 at £2.68 and sold in July at £2.06. The mistake here was that I bought it as the price was in decline rather than breaking out on the previous purchases. Sloppy!

We live and learn.
Best of luck
Phil

43market

16th Mar '15

Thoughts from a broker

1 ) What other shares fall into that category of having multiple screen of screens passed in the past or the best part of 30 months ago? QPP maybe? SDY another?

2) Prior (a few days) to the good news break on the 13th March I notice DTG had passed only one screen

3) All screens require an element of continuity. Dipping back to October 2012 might appear a bit rich to flag up as a state of screen continuity, as proven by the number of screens that it had Dart PLC passed on the 12th March

43market.. good points there... I think the screens system is far from fool proof... seems to flag up lots of questionable shares which look good on paper but in reality don't do well....

43market... It's irrelevant how many screens Dart passed on the 12th March 2015 - screen candidacy can be very volatile and change from day to day. What is relevant is for how long Dart has been flagged by the Ranks & Screens in general. You can see from these charts that that has been plenty of consistency and opportunity for investors to notice the stock on the site.

Screen of Screens history for DTG

5506b16e99dfbDart__DTG__checked_against_

There are lots of other stocks that were on the original Screen of Screens several years ago that have done extraordinarily well (JD Sports, Diploma, WH Smith, Optos etc)... that's the only way the strategy as a whole could have risen by 93% in that time period. There have been some stocks that haven't done as well...but the assessment should beabout what happens on average, not what happens to particular stocks.

PS - There are some amazing stats about the inaccuracy of brokers forecasts... e.g. Read Sin 1 here: http://www.trendfollowing.com/whitepaper/Seven_Sin... I am always careful about who I pick up the phone to as a result.

Ed I take your points on board and that said what is the best procedure (in your view) to arrive at a short list of potential `Dart Groups to be` using Stockopedia?

Preloading this statement with... 'past performance is not an indicator of future results' ... the StockRanks are here... http://www.stockopedia.com/stockranks/

Dart was top of the list last week... dropped to 4th now.

This is an essential read http://www.stockopedia.com/content/how-to-think-about-high-stockrank-stocks-87809/

Quick tutorial about the portal here: https://www.youtube.com/watch?v=Qp0Ad41ZdKc
And more on the theory here: https://www.youtube.com/watch?v=keHurC_WRK0

DYOR as ever!

It is pretty easy to see the confirmed stop loss in May 2014 (from the small chart) with the 50 day moving average broken, or even an earlier one in September 2013, depending on how tight you set the stop loss, or set two stops, one as a caution, the other as a definite exit. Sometimes it is a good idea to back test or try different moving averages which best fits the particular share.
Again in the screen of screens gap there were no takers from anyone in the screen of screens for DART at that period of time.
Now is a totally different situation where the 50 day moving average is way below the share price bringing the share price to a tad over valued, but still "worth it"

Talking about screens today DART has 1, Plus 500 has 7 with about a 4% dividend tax paid, due.

stupormundis

.. I think one of the great strengths of Stockopedia is the backbone it provides me with by making me hold on to good stocks when the shares have disappointed a tad after several months. There were several occasions when I was tempted to sell Dart but the fundamentals and QVM ranking on Stockopedia gave me a bit of gumption to hang on in there.
Similarly there have been times when I have been holding on to stocks because they have drifted upwards with the rest of the pack when there were better investment case around .. SP has prompted me to dump them and move on to pastures greener

valueman

17th Mar '15

I've doubled my money in a couple of years ,sold out bought back in Jan & Mar .
I'm keeping them this time because no one seems to be factoring in the giant fuel savings coming our way .the share price takes into account better trading but not the future fuel savings . I calculated that a 10% drop in annual fuel costs saves them £25m - that's half of profits . With the digging I've done I suspect they were covered for the summer 15 but maybe not thereafter so I expect to see a massive increase in profitability mar16.
Since they buy their holidays in Euros do we not think there will be big savings there too.

Dart Group - and the great lesson it holds for investors

It's so hard to buy stocks at new highs

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Edward Croft

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