The SMT share price slumps 24% in a year: should I buy now?

After the recent technology sell-off, does SMT’s geographical and sector diversity make its share price attractive?

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Key points

  • The recent global tech-sell off has impacted the SMT share price
  • Provides exposure to US and Chinese stocks, both public and private
  • Earnings have fallen over the past five fiscal years

Formed in 1909, the Scottish Mortgage Investment Trust (LSE: SMT) is operated by the asset manager Baillie Gifford. Headquartered in Edinburgh, it is currently heavily technology focused. Indeed, the SMT share price did not escape the recent sell-off of global tech stocks. Consequently, it has slumped 24% in the past year. Built for growth over five-year timeframes, SMT may be a good option for long-term growth. I want to know if I should buy this stock or avoid it. Let’s take a closer look. 

Geographical and sector diversity

One of the reasons the SMT share price is so appealing is the vast array of high-calibre companies to which I can gain exposure. While the holdings represent a number of different countries, they are mainly centred on the US and China. These include some of the biggest tech companies, like Tesla Motors, Tencent Holdings, and Alibaba.

While these companies are heavyweights in their industry, the tech industry generally has suffered recently. Investors are retreating from these businesses as we prepare for an interest rate hike next month. Tesla, for instance, is down 17.5% in the past month. In spite of this, its yearly gain is nearly 9%. The overall downward movement of tech stocks has, however, severely dented the SMT share price, because many of them are in its portfolio.

Nevertheless, the leadership of James Anderson, Tom Slater, and Lawrence Burns is competent in achieving long-term growth. They reduced the Tesla position and replaced it with Moderna. This latter company is famous for creating a Covid-19 vaccine, when the pandemic entered its first winter in December 2020. This leadership gives me confidence that the SMT share price can weather most storms that come its way.

Recent results and the SMT share price

Results between the 2017 and 2021 fiscal years do not make terribly attractive reading for shareholders and future investors. During this time, profits have fallen from £15.9m to just £10m. In addition, earnings-per-share (EPS) has decreased from 1.07p to 0.62p. By my calculation, this means that SMT has a compounding annual EPS decline rate of about 10.34%.

At the time of writing, however, the net asset value (NAV) of SMT is around 990p. It is currently trading at 974p. This means that the SMT share price is at a 1.5% discount compared to the value of its underlying holdings. 

While recent results may be off-putting, I still believe in SMT’s power to deliver growth over the long term. I won’t be buying today, because I think the SMT share price may slide further with imminent interest rate hikes. Nonetheless, I will keeping a close eye with a view to purchasing shares in the near future. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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