NWL, ARB, HUB

Hi Mark,

Valuations are very subjective and are heavily influenced by what comes next. i.e. if a company can manage to grow at a quicker rate in the future than the market thinks, stocks quickly go from overvalued to undervalued based on the delta of earnings.

The other aspect to consider is who is calling it overvalued, Morningstar for instance, use what we think is a very rudimentary model of valuation, more anchored to a stock’s current valuation relative to its past valuation with less work done on the positive changes in the business that could be driving that valuation uplift.

We do agree that HUB and NWL are rich, and we don’t own them currently for that reason, overlayed with our view that margins may fall further than is currently expected.

We like ARB and believe the market may be underappreciating its ability to grow earnings in the future, making it our preference here and now, noting it is a very different business to the platform operators HUB & NWL.

To your point about risk/reward, in short, yes. When companies have so much optimism priced into them, only a small slip in execution that hurts earnings is then amplified by a re-rate in the multiple the market is prepared to pay for those earnings, and shares can come down quickly.

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HUB24 Ltd (HUB)

LAST UPDATED 13/09/2024 16:38

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HUB24 Ltd (HUB)

LAST UPDATED 13/09/2024 16:38