In the previous post I discussed changes I’m considering in how I handle very high trailing growth rates in figuring 1YPEG’s and wrote that It wouldn’t have affected some of our stocks that have recently come off their highs, such as SKX, SWKS, AMBA, BOFI, or INFN, who would all still have had low 1YPEG’s. I said I’d discuss my thoughts about them in the next post. Here it is:
I think that those stocks were each affected by a different factor entirely:
I feel the largest, and major, factor (one that affected them all), was the market correction that started in August. When the market is going up even major problems in a growing stock are excused and ignored, but when the market is going down, the most minor problems are exaggerated, and others are imagined, even if they aren’t really there.
All of these stocks had had big gains, and in the market correction, stocks that had gone up a lot were knocked down, whether they had merited the advance or not. In fact, just about EVERY stock I look at: ones I am holding, ones I sold, ones I thought of buying but didn’t, they are all down from their highs. That’s what happens in a correction.
SKX (my opinion here) was also affected by the memory of their tone-up debacle in the past. People may also think of Skechers as a fashion item and therefore one that may go out of style, which means that they don’t know anything about the company. What sells Skecher shoes is not fashion, it’s comfort. But especially, I like a suggestion that Neil made, that someone must have not updated their computer for the 3:1 stock split which immediately preceded the earnings announcement, and the computer thought that earnings were only a third of what they were and sent out wild sell signals. (That’s the only rational explanation for a 30% drop in price in response to all-time record revenue, up 27% year over year, earnings up 30%, etc - a 10% drop, okay, but a 30% drop in a stock which was only at a PE of 30 or so? A computer not being updated, while an off-the-wall explanation, makes more sense in trying to explain something which seems entirely irrational).
SWKS - As one of the analysts wrote: “People just don’t get this company yet. They still think of SWKS as an ‘Apple supplier’ who may lose their business overnight”. At their high of $112 they were only at a PE of about 23. Their PE is now 17 and their trailing rate of growth is over 70%.
AMBA has fallen because of worries that they are too dependent on GoPro and that GoPro will flare out (last quarter GoPro’s revenues were up 70%, so not quite flaring out. We’ll see). Another possibly valid worry is that good-enough-and-cheaper chips will cut their margins.
BOFI fell for it’s own reasons that have been well discussed.
INFN fell because (like SWKS) it’s lumped in with others in its group, and when others go down (even if it’s because INFN is taking their market share), it’s a signal to sell INFN too. For a comical example of this, the other day an analyst sent out a report about a competitor of SEDG, saying that SEDG was clobbering it, and saying that the competitor was a sell. The competitor sold off 15%, and SEDG sold down a few percent in sympathy, because some people saw the competitor selling off and figured there must be some problem with the sector.
I believe that a lot of the big mutual funds, ETFs, and hedge funds, are managing so much money that they have to follow enormous numbers of individual stocks, and that the companies become just stock symbols to them (“Oh, yes, this one, this one, and this one, are in that sector, and those five are in this other sector, etc”). They can’t possibly read all the reports, listen to all the conference calls, and have the information and understanding about the individual companies that we do. That doesn’t mean we’ll always be right, but we do have a big advantage in terms of seeing the company as an individual and not just a stock symbol in a sector.
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