Good morning!
Some interesting discussions on Twitter today. Several of us noted that the small caps market seems extremely polarised at the moment. Companies which are out-performing seem to be relentlessly rising, with valuations going through the roof in some cases. Sky high PER now seem to be the norm for any company delivering good organic growth. There's some sense in that of course, but it's all starting to look stretched to me.
I think some stocks are continuing to rise on momentum trading - i.e. arguably rising above a reasonable valuation. The trouble with that, is that when the music stops (e.g. if something goes wrong), then a vertical move down is on the cards. Dangerous stuff.
The flipside of that is that companies which disappoint the market with a poor trading update, are being absolutely clobbered. Relentless selling - just look at how Crawshaw (LON:CRAW) (in which I hold a recently purchased long position) has fallen from grace. 80p to 29p in the last 3 weeks. Catching the falling knife there has been a costly lesson - although nowhere near as costly as people who paid a big premium for growth when things were going well.
Spaceandpeople (LON:SAL) (in which I hold a long position) is another one - yes it has repeatedly disappointed, but looks to still be profitable (as it benefits from an H2 weighting, due to Xmas trading), now down to only 22p. I'm staggered it's gone that low, the mkt cap is below £5m now.
I think there's bound to be a turning point, when the bombed out stuff recovers somewhat, and the toppy stuff corrects. However, timing is everything on that front, and I've no idea when the turning point will come - but it will come - these valuation extremes between growth & value stocks do eventually correct.
It's starting to feel a little bit like 1998-99 again - raging valuations for tech & other growth stocks, and plummeting valuations for value stocks. That reached as astonishing peak in Mar 2000, before it all crashed, with a 2.5 year bear market following. Worth noting.
ShareSoc Richmond
Last chance to register to see IG Design Group at ShareSoc’s Richmond Supper today – an interesting company with a solid track record. CEO Paul Fineman will present the company and answer questions.
