Following up my question about popular stocks from the SCVR that had performed badly (https://www.stockopedia.com/content/small-cap-value-report-fri-1-march-2019-duke-rbg-rmv-453208/) I went and did a bit of digging. It's a thoroughly unscientific study which has cherrypicked its examples, and no doubt I've missed a few but I'm really just interested to see if there are any principles we can dig out. So, let's have a look:

Revolution Bars (LON:RBG) – essentially this is just a car crash of a stock with poor management combining with an awful environment for restaurants. The lousy situation on the High Street is well known, so investing in this at any time over the past year has looked like a bet on someone buying it. You could have paid 167p for this in January last year and would now be nursing a loss of over 60%. There was a break point – the trading update on June 14th was a warning, and that would have allowed an exit at around 136p.

Verdict: just an awful sector of the market, looks like a lot of investors anchored on the 200p bid price from Stonegate in 2017 and have failed to adjust their mental models.

Keywords Studios (LON:KWS) – I held this until the middle of last summer (no skill in selling, I just dumped everything before I went on a long holiday). I viewed it as a pure momentum play, buoyed up by uninformed investors bidding up the stock. It reached 2000p at its peak – but that gave you a PE of 40 and P/FCF of 147 on some distinctly average quality metrics! Since then anyone holding has lost 40% of their investment. All momentum based investments are prone to corrections when the market moves against you, and that’s what happened in October – anyone acting smartly might have got out at about 1500p. But it was also inherently risky – it could have run into issues with one of its many acquisitions and is in a rapidly changing sector where trends such as Fortnite can completely change the market economics.

Verdict: it was overpriced and therefore subject to a market correction. If you believe cashflow is king (I do) it still looks expensive.

Purplebricks

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