Given your last reply on well at 16 times forward earnings, is this stock mis priced by the market? I would think for growth company, investors would pile into the stock given the current decrease in rates which help small caps.. Any comments? Also, do you think xsu can go much higher or has it rallied already in expectation of rates going down? Lastly, i know you don't believe in market timing but when some stocks surge due to recent announcements on lower rates, is it worth selling and buying it back when markets settle.. much appreciated.
It is a smaller company with minimal analyst coverage, and so inefficiencies can take place. Other times, a stock can be cheap as investors are pricing in certain expectations, in the case of WELL this could be missed future earnings as its track record of beats has been inconsistent, or it could be pricing in its high level of debt (3.3X net debt/EBITDA). Management has been conducting share buybacks, and so we feel that management believes shares could be undervalued here. We see the fundamental story as having changed here, with margins flipping positive and free cash flows coming in nicely, and we believe some investors are either too concerned by their high debt loads or are not aware of the fundamental improvements.
We continue to like US small caps as well, and we feel that XSU can perform well as rates come down and positively impact these high-interest rate sensitive names.
Many stocks have been waiting for certainty around the degree and level of rate cuts from the US, and we think while some pullbacks could take place, there is potential for upside price action in the markets.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in XSU.