We’ve all missed out on a stock because we thought it had gone up by too much. It’s just counterintuitive to buy a stock when the share price has shot through the roof. The aim is to buy low, sell high, right? But what if the share price keeps going up? The interesting thing is that stocks have a tendency to ignore the laws of gravity. Shares that have gone up have had a historical tendency to, on average, keep going up.
It seems that when prices move in one direction the allure of not missing out in an uptrend or of throwing in the towel in a downtrend is too great for investors to shy away from. This was the hard lesson I learned with one of the companies that I’m going to discuss today.
Crawshaw
I remember thinking long and hard about buying shares in Crawshaw (CRAW) back in January 2014, when the company traded at around at 16p per share. What put me off was the fact that the company had more than quadrupled since January 2013, when you could buy Crawshaw for just 3.5p. The company also had a high P/E of 27 and was 11% higher than the brokers’ target price. Take a look at the StockReport from January 2014.
Look at what happened next.
I’m quite annoyed because Crawshaw now trades at 55p. If I bought the shares back in January 2014, I would be up by 343%. That’ll teach me to look at broker forecasts. With this strong share price momentum, it is hardly surprising that the company has recently qualified for Stockopedia’s Price Momentum Screen.
Crawshawis a butchers chain based in Rotherham. The firm buys surplus meat from supermarkets at a discount, which enables Crawshaw to provide customers with supermarket quality meat at discount prices. It seems to be a winning formula. Earnings grew by over 300% in 2013 and more than 80% in 2012.
The company has a P/E ratio of 39 on a historic basis and 71 on a forecast basis. What has driven Crawshaw’s share price to such lofty heights? This interesting article from John’s Investment Chronicle mentioned a job advert placed in the FT…
