Progress and updates
On Tuesday, Communisis again found itself tipped in Investors Chronicle - as it did not so long ago, in February. Once again I found myself rather impressed by the price reaction; both times the stock shot up double digit percentages, with the first time seeing a 40% rise in the following weeks. Sorry, no link - it's behind a paywall - but the piece seemed rather short and to the point, highlighting the low price relative to the dividend and their projected earnings. I still like the company - only a few weeks ago they reported their 2011 results, which seemed to show things moving along in the right direction, albeit with some rather hefty restructuring costs. They genuinely seem to be repositioning the company well for the future, though, and the business is very cash generative if it needs to be, so I still like it.
My only niggling wonder is whether to sell it in the coming weeks or not. Around a month after the share tip last time, the stock had dropped about 25% of its share price again. I wonder if I'm dabbling in the arcane arts of trading-and-hoping by thinking this may have been inevitable given a short, sharp shock to demand. After all, I only have a sample size of one to go on, and the question I have to ask myself is what I would do if the stock didn't come back down, but kept rising. Realistically? I'd probably be pretty annoyed, since I would have sold below what I thought it was really worth. I think that's a hint that I should hold it.
Plastics Capital haven't got much coverage on this blog since their inclusion in the portfolio not far off a year ago. The simple reason for that is a pretty good one; they haven't done or said much that really needs writing about, which is fine by me. I am quite happy with them just continuing to pump out the widgets they were set up to! The share price has drifted down somewhat in that time, a little more than the market, despite continuing to release consistent trading updates which report sales in line with market expectations. Market expectations are for a slight pullback in profit growth, I should note, but still put the business on a mid single-digit P/E - and the company suggest that this year hasn't been that great for them. One of their businesses reporting first orders in both the US and China bodes well for the future in the biggest markets, and the share price moved accordingly - closing the day up 6% after having hit +16% somewhere along the way. Small cap price movements are entertaining!
I suppose similar could be said for Dart as for Plastics Capital above - their share price has stumbled since last July when I included it in the portfolio, despite continuing to perform well. They too expect current-year profits to be in line with market expectations as of last week's trading update - and the forecasts I found put the business on a P/E of just shy of 5 (vs. 7 last year), confirming their growth credentials. There is evidently some hefty scepticism and dislike around the company, presumably because of the relatively small float and usual suspicion around a sector which hasn't historically been the best friend of investors.
Not a great deal is being returned to investors either, and their good cash generation is being plowed back into the business - perhaps a downside for some who want a sign of intent from the small cap. From my point of view, though, it seems good. I like that the business I've invested in has more profitable uses of its cash than giving it back to me. They seem to be good custodians of my capital so far, so growing and increasing their profits makes sense. (more…)