I went a bit against the current and sold off the rest of my Evolutions last week at around 980 SEK levels.
An investment mistake. Perhaps the financial losses weren’t catastrophic, but the opportunity cost has been considerable, as I’ve watched Evo’s multiples being digested with a proper-sized position for years. In addition, the initial purchase was financed by selling AbbVie - by holding, it would have tripled in five years, but instead, I got stagnation. Why could someone buying such a good company have failed?
- Multiples. An EV/S of 20 is not a price you can pay for a company and expect things to work out. Even though the multiples have been digested very efficiently, there’s still room to go down. Which leads to:
- Margins. When you buy a company making 60% net margins, unfortunately, there’s only one direction. Evo has defended its profitability brilliantly, but defensive play doesn’t accelerate growth. And…
- The slope of growth. It feels idiotic to think of Evo as a slow-growth company, but the pace has slowed down, there’s no getting around it. The more it slows down, the harder it is to justify even the current valuation.
- Ownership. Evo has a good main owner, insiders love the stock, and the stock is not some cult club’s favorite toy like Tesla/Lemonade/Palantir. But when institutions can’t buy and the company doesn’t buy back more than its allocated amount, then it’s just stagnation. Sweden’s Fintwitter (Financial Twitter) section cannot endlessly buy up the sell-side, and when a lot of stock has been printed, there are enough sellers with almost every dissenting voice.
Is it then another mistake to sell the company now, when multiples have been digested and earnings-wise we are moving at fairly moderate figures? Perhaps, but Evo still has the potential to grow slower, lose its rock-solid profitability, or be dumped lower from EV/S 8 levels. The situation is certainly different now, but with hindsight, one can only shake their head at how high the expectations were when I first acquired Evo. If the company were any worse (the company is excellent), capital would probably have been destroyed much more and much earlier. Now, I still got off with a learning experience.
What instead? Something opposite: a company from which nothing is expected, for which one doesn’t have to pay high multiples, and which ultimately consistently exceeds expectations. Let’s see what the market offers.
YTD: +24.34 %