This contrarian investing malarkey certainly goes against human nature.
I mean you see a business’ share price like St. Ives (LSE: SIV) today get a hammering by the market and instinctively you buy stock.
Well at least I do.
Call it madness if you like but that’s the way it goes here at Shares and Stock Markets.
The thing is I’m not sure how much more contrarian investing I can actually do since the general market on a Shiller PE basis is historically high and I can’t help feeling that the portfolio is going to take a hiding at some point.
But I can’t help myself and it’s the result of consuming value investing philosophy for years.
Today’s investment into St. Ives couldn’t be more contrarian:
- Multiple profit warnings
- Pessimistic future guidance
- Institutions dumping stock
- Growth via a lively acquisition spree
- Enormous goodwill/bloated/weak balance sheet
- The destruction of net tangible asset value
- Unsatisfactory cash flow management
- The prospect of more placings to fund acquisitions
- Heavy operating losses
- Massive pension scheme liabilities
I could go on but the investment case clearly is pretty weak if you’re into traditional sleep at night stocks.
…the outlook for the final quarter, and for the following financial year, has deteriorated.
Rather I’m interested in the fact that the market – rightly or wrongly – has decided to half the market value of a business that has been profitable (albeit in a rather lumpy fashion) with positive EPS for the last five years at least.
To me the dividend is irrelevant and does not even form part of the valuation of this business because it is under threat due to the pessimistic forward guidance.
My view is that the market is pricing in further value destruction for shareholders which will hopefully be a wake up call to the powers that be.
I do hope that the management team can improve organic growth rather than just buying growth since the balance sheet is already looking shaky and you simply cannot sustain such a course of action
Underlying revenue increased by GBP17.0 million (5%) to GBP344.6 million. After equalising the effect of acquisitions made, during the current and prior year, growth from acquisitions was 6% offset by a 1% organic decline. The organic growth within our Strategic Marketing segment has been offset by a decline in the Marketing Activation segment and, to a lesser extent, the Books segment…
I’m an extremely cautious buyer at this level but I’m happy to hold stock at half a position size to see what management can do are capable of doing.
If the share price declines from here say to it’s historical lows of 45p then I hope to have the discipline to buy more.