When a spring is hammered very hard, the spring back tends to be very sharp. This is probably the best description for SPH this week.
In the last few days, most of the news or discussions related to this stock appeared to be bad, or at best, neutral. Being a by-stander watching from the sideline, it appeared to me that nobody seemed to have anything good to say about this stock. Indeed, it was hammered very hard for the first 3 days of the week hitting a low of $2.54 per share on Tuesday and Wednesday. In the last two days, however, it seemed to have rebounded quite strongly to close at $2.68 by Friday, though it is still lower than the last week’s close at $2.74. Perhaps, these were some opportunistic purchases made by contrarians. After all, it SPH has never experienced this low except during the global financial crisis in 2008/2009.
For the last 5 quarters or so, most of the news related to the stock were generally not positive. Pessimism over this stock grew in every release of quarterly results. Perhaps, the sell down this week was in anticipation of the poor results for the coming quarter as well. So if the quarterly result is not as bad as expected, then maybe we can expect a small price re-bound. (I say small because SPH’s economic moat is not strong at this moment for a significant turnaround) Of course, the other way also holds true. If the result is worse than expected, then perhaps we should expect a further sell down.
(This was the abstract taken from a Facebook post in April 2016 for past students. At the time of writing the Facebook post, things were still not as bad. So the expectation was that it probably should stabilize at around $3.70. News turned out to be very bad for the next 5 quarters. Yesterday, the share price closed at $2.68.)
Here is the dilemma. It has been a happy situation to have unloaded all my SPH stocks in anticipation that SPH would face hard times ahead. It has been too heavily dependent on the print business. Since then, I was on a stand-by mode, waiting to buy them back at a lower price. It should not just centres itself around the print business. It has to lay out a sustaining business proposal on the table before the share price can turn up convincingly. Now, with the bad news already significantly discounted in the share price, it may be the time to re-consider buying some back as ‘insurance’ in case it really made a turnaround or at least stabilized after more than a year of battering. Hopefully, it is at least a breather for now. It had lost one-third its value from an average price of about $4. For all we know, the share price always lead the actual company performance. So buying back may be a good idea if we believe that something magical can happen in the future. Let us see what happens in the next few weeks.
Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.