Of late, Comfort-Delgro (CDG), together with some stocks like SPH and Noble, were in the limelight. Obviously, a sea of pessimism has been haunting the stock in the last few weeks. Today, its share price is $2.28. It had broken through the ‘very strong’ support level that many traders described as between $2.37 and $2.40. The strong support had lived to its name for several months, but still it was finally broken. Frankly, there has been a swing in the sentiment.
For the past two years in 2015 and 2016, the market appeared to be extremely optimistic over this stock. It started off with the falling fuel price in end 2014. Then came a revision of transport fares and, finally, the news on LTA taking over of operating assets from the transport operators in mid-2016. Good news had obviously fueled the market to become overly excited and the share price of CDG was pushed above $3.00 in 2015. At the price of $3.00 the PE ranged between 20 and 23 from 2014 to 2016 and was trading between 2 and 2.5 above book value. It is not exactly expensive (of course without the luxury of comparing against similar companies). Perhaps, its growth potential has prompted many analysts to be more optimistic with buy calls above $3. Even in the year 2016, when the market price was gradually sinking, many analysts were still recommending buy calls on the stock with target prices above $3.00.
Obviously, there was too much good news feeding into the stock price. Frankly, I felt alone when everyone was optimistic, but that gave me pockets of opportunities to scale down my CDG holdings in the Q3 and Q4 2015. It had a good run since mid-2012 from around $1.50 per share. In fact, I had pointed out to past students be aware of the threat from Uber and Grab almost 2 years ago amidst the widespread optimism over this stock. It was difficult to know the extent of the damage it can cause on the taxi services. My initial assessment was also that there could be some kind of government intervention, but it appeared to be almost none as we know now.
In fact, even in 2016 when the share price was slowly sinking, most analysts were still recommending buys with target prices above $3.00. The discomfort prompted me again to write the blog in May last year :
In hindsight, I am happy that I was able to reduce my shareholdings at a good price. With most of the shares bought before 2012, and I had sold about one-third of my shareholding above $3.00, I have a relatively comfortable margin of safety even at this on-going price (today close at $2.28). However, I still regretted that I did not follow through my conviction to sell 50% of my holdings. My expectation of the government intervention and a special dividend for the sale of assets to LTA did not materialize. Also, perhaps, I have emotional attachment to this stock. Its predecessor, SBS Bus, was my first stock that I ever purchased and sold at more than 100% profit in matter of 2 years more than 20 years ago. This experience had actually set me off in this adventurous stock investing journey.
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.