This top fund manager says “blind chase for share price momentum” may have taken over the Wistech and Afterpay share prices

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In its most recent update, the top performing Saville Capital Emerging Companies Fund has cautioned against reading too much into the strong performance (+4.4 per cent) of the Small Industrials Accumulation Index in August 2018.

Two of the largest weightings within that index are tech stock high flyers Wisetech Global (ASX:WTC)and Afterpay Touch (ASX:APT).

The Wisetech share price soared 40 per cent in August, with the Afterpay share price jumping 28 per cent higher in the month. And those gains came after their share prices declined by 10 to 15 per cent from their intra-month highs in the last week of trading in the month.

Saville said incredibly, Wisetech shares trade on a FY19 price to earnings (P/E) ratio of around 100 times and has a market capitalisation of around $6.4 billion. Similarly incredible is the Afterpay valuation, its shares trading on a FY19 P/E of 150 times, with the company capitalised at around $4 billion.

Blind chase

Saville said that while they can’t say these valuations will prove to be incorrect, when share prices continue to rise daily — often by significant increments — in the absence of material positive news flow and then surge when results were broadly in line with consensus expectations, it does suggest that “a blind chase for share price momentum may have taken over.”

The Saville Capital Emerging Companies Fund is up 73.8 per cent since inception in February 2017, making it one of the very top performing funds in that period.

In November last year it said it exited its position in Afterpay shares at an average price of $5.57 “due to a lack of valuation support.” The fund was also concerned about an increase in Afterpay’s net transaction loss. It did book at 138 per cent profit in Afterpay shares, having first bought a position at $2.34 in April.

Afterpay shares now trade at $16.57.

The  Bennelong Avoca Emerging Leaders Fund recently called Wisetech and Afterpay shares “vastly inflated.”

Afterpay Touch shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Afterpay Touch was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than Afterpay Touch. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au