RentGuarantor - the one that got away

Three months ago shares in RentGuarantor (RGG) were 31p. On Thursday, the company told the market it was trading “materially ahead of expectations”. That’s the fourth time in four months it’s used these words. The shares jumped another 18%, ending the week on 110p. That’s a 254% rise in 3 months. Wow.

The backdrop wasn’t great all week. Gilt yield worries took 2% off the FTSE All-Share, and IG Group (IGG), popular in the community, fell 23% on a profit warning. If RentGuarantor was in your portfolio, you’ll be smiling this weekend.

It wasn't in mine. I should have known better. And I’m kicking myself.

RGG - four gold stars

It’s instructive to overlay trading statements onto RGG’s share price chart. Each star is a trading update that beat expectations. The two grey ones, in January and April, said the company was trading “ahead" of expectations - but the shares didn’t respond. By the end of May the share price was lower than before January's update. But look what’s happened since June - four "materially ahead” announcements in a row - four gold stars. Since the first of those, on 1st June, the shares are up 286%.

What’s been the catalyst?

The Renters' Rights Act came into force on 1st May. My understanding is that Landlords can no longer take more than a month's rent in advance, so tenants who used to pay up front now need a guarantor. Apparently evictions have become more complicated too, which makes landlords keener to have one. And RentGuarantor sells… rent guarantees. Right place, right time.

In May, RentGuarantor’s revenue was £700k, more than double the monthly average for January to April. In August it had boomed over £3m. The brokers couldn't upgrade fast enough.

In March the forecast for FY2026 was £4m of revenue and £0.2m of pre-tax profit. It's now £19m and £9m. As Mark put it this week: "I've rarely seen a company of this size more than double profit expectations."

The signal I should have followed

Generally, I’ll only buy high-ranked shares. The payoff is so well proven, and investing really is a game of odds. Why take poor odds?

But the one signal that makes me look further down the StockRanks is when a company says it’s trading “significantly/materially ahead of expectations”. It’s been such a proven catalyst that it’s hard to ignore. Companies use these words very rarely - and occasionally something pivotal has happened.

RentGuarantor on the 1st June was exactly this exception. It had a StockRank of 9, a market value of about £41m and an operating loss of £1.4m the year before. And there in the trading update was revenue "materially above market expectations". I looked at the StockRank and moved on.

Graham was far braver. He upgraded his view to AMBER/GREEN the same day, writing: “it goes against all of my value instincts. " - but he was right. By September he had turned fully positive and was asking: "Maybe I was bonkers for not turning GREEN on this sooner?"

Jump, then drift

These moves are predictable. We've been grading every results statement and trading update from UK companies since January 2025, 3,617 of them. Only 108, about 3%, said trading was significantly or materially ahead. Here's what the shares did next in each case.

The "significantly ahead" cohort jumped 9% on the day, then kept drifting in the same direction. Bought at the close that day, after the jump, it gained a further 16% over the next nine months, and 71% of them rose. A plain "ahead" was worth about half that. In-line statements went nowhere. Shares that came in below expectations fell 5% on the day and were 8% down nine months later. Admittedly, this is a small sample size - 2025’s announcements, but it tallies well with the longer term research study we ran last year.

And this isn't a high-StockRank effect - which is why I like it. Eleven of the 41 came from shares with a StockRank under 40. Their median gain from the close was 18%, and eight of those eleven rose. Good news also repeats. After a "significantly ahead", the company's next statement was another beat 56% of the time, against 29% for the average statement.

What the StockRank can’t see

A StockRank reads the numbers as they stand: the accounts, the forecasts, the share price. In June those numbers described a small loss-making company. The trading update described a pending big future change, explaining why the growth was real: the Act had changed what landlords and tenants needed. The StockRank has since climbed from 9 to 42 and I expect it to rise significantly further.

It's one of those cases where reading newsflow can give you an edge over the ranks. The run was flagged in plain sight, four times, with our analyst team’s backing. We're working hard to bring these kinds of signals into the subscription service, so that a "significantly ahead" signal is as easy to spot as a high StockRank.

Of course this doesn’t make the shares at 110p the same bet as 30p. Mark kept his positive view this week, but he listed what could go wrong. The growth comes from one change in the law. Most of the contracts are less than five months old, so nobody knows yet what the claims will end up costing - and when a company generates oustanding profits, competitors appear.

One last thing

If you look up RentGuarantor on Stockopedia today you'll see its StockRank Style is Momentum Trap: a momentum rank of 99, a value rank of 5, and quality still middling due to backwards looking statements. It has carried this Style label since late June.

Momentum Traps are one of our four “Losing Styles”. Is RentGuarantor the exception, or is the Style Classification a warning about what comes next?

I'll show all the long-run numbers for every Style, Momentum Traps included, in next week's webinar, Four Kinds of Share Lose Money. Do You Own One?

It's on Thursday 8th October at 5pm. Please do sign up here.