WHILE both the Lilliputians and Gulliver are merely elements that spark excitement in fictitious adventure, Gulliver’s Travels, drawing an equivalent between Genetec Technology Bhd and Top Glove Corp Bhd (or any of the Big-Four glove maker) is surely no fiction.
Such is the reality of stock selection rightly pointed out by CynicalCyan in his latest posting on the I3investor platform.
It is indeed a bewildering thought to even imagine how the unfancied designer and manufacturer of smart automation systems – which is only listed on the ACE Market – is steadily shooting through the roof in stark contrast to its Main Market-listed Bursa Malaysia counterpart which is touted as the world’s largest glove maker.
As the Big-Four glove makers are edging down to their 52-week lows primarily over concerns of declining average selling prices (ASPs), Genetec which was only RM1.80 on Jan 4 has since made a meteoric climb to close at RM34 during today’s mid-day trading break (down RM2.02 or 5.61%).
“If you bought Top Glove at closing of Jan 4 Jan and held until now, you’d get a painful 44% loss (excluding dividends),” observed CynicalCyan. “If you bought Genetec at the closing of Jan 4 and held until now, you’d get a whopping 1,901% profit.”
In essence, there are three valuable lessons that investors can learn from the Top Glove-Genetec episode, according to CynicalCyan.
- “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – British-born American economist, professor and investor Benjamin Graham (1894-1976).
“Top Glove was the love of Mr Market in 2020. But Mr Market dumped her and made Genetec his new darling in 2021,” he observed. “Whether it’s tech or healthcare, it is the future prospects of the company’s business that drives share prices.”
- A profitable company may not always be a profitable stock trade.
“Top Glove has been making many, many quarters of profits. Yet, share price-wise, Top Glove was heavily outperformed by one Genetec which has erratic earnings record in 2021,” CynicalCyan pointed out.
“An investor has to realise that a company’s quality may not equate to stock trading profitability for himself/herself.”
- PE-based investing does not work all the time.
“Just look at the mind-boggling PE difference of both companies. Especially if the business is a cyclical one,” suggested CynicalCyan. “PE ratio is just one valuation method. There are many other factors to take into account before buying a stock.”
As his closing thoughts, CynicalCyan concluded that the contrasting fortunes of both Top Glove and Genetec is perplexing but interesting.
“Could this be the stock market trend going forward? Would investors be shaken by this episode and forgo stock investment strategies based on company fundamentals, thus becoming pure technical analysis traders?” he wondered.
“Or would investors transform into ‘diamond hands’ by holding their stocks for the long term? Let’s revisit them at the end of the year.” – Sept 20, 2021
