How Monash Investors see it
Compelling stocks are defined as those that meet our very high return hurdles and are mispriced and misunderstood by the market. Because we set the bar high, we focus our research attention on a small number of stocks that meet our strict criteria, versus trying to cover the whole market.
A compelling stock must exhibit a combination of the following four attributes
The stock is misunderstood or underestimated and we know how and when the situation will be rectified
It must have a high level of earnings per share growth and/or cash flow per share growth
It must have a large payoff to our assessed valuation
It preferably has a near term catalyst
And whilst these attributes are straightforward to articulate, finding them is where the hard work begins and where our experience plays a major role.
Finding compelling stocks, starts with a philosophy
We believe that most stocks are fairly priced most of the time, but significant stock mispricing can occur because of recurring patterns in market participant behaviour.
Because of our deep market experience gained over 45+ years of combined investment experience, we understand what factors influence this recurring behaviour and we know how to profit from them before they are fully appreciated by the market.
Examples of how mispriced and misunderstood opportunities can be found include the following,
- Underestimation of significant change
- Analyst reputation management
- Drive by boards to exploit high ROE opportunities in their core business
- Limitations of company guidance
- Overlooked signals
- Business disruption
- Misjudging risk (short termism)
- Corporate motives by brokers
- Lack of analyst coverage
See some evidence
View our latest compelling stock blogs
At Monash Investors we look for recurring situations and patterns of behaviour to help inform our investment decisions. One situation is the drive by Boards and Management to exploit high returning opportunities in their core business. In the world of retailing new...
Emerchants’ has stable banking relationships with it’s UK & European banks that should be unaffected by the political uncertainty in the UK. Instead, we sees their expansion into the UK markets as an underappreciated opportunity. Based purely on the Australian...
Catapult recently acquired US-based sports video analytics company XOS Technologies for $US60 million ($80.1 million). The acquisition offers significant strategic value as it allows Catapult to leverage XOS’s sales team, who already have “very deep relationships”...
We knew there was something wrong at Sky Network TV (which is listed on both the ASX and NZX) when they posted their first fall in subscriber numbers in 20 years. Upon investigation, we found that NZ brokers were hesitant to say anything negative about Sky as many of...
Given the structural headwinds faced by CCL, we think that analyst forecasts are too high, as is the multiple that the market is placing on those earnings. It is not the low risk growth company that it once was. In shorting CCL, we draw confidence from identifying...
Emerchants is an issuer and processor of debit cards, ranging from reloadable cards through to traditional, single-store gift cards. It allows businesses to custom brand cards, for use by their customers or employees, and to limit that card use to certain stores or...
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