In March, Scottish Mortgage Investment Trust (LSE:SMT) share price hit 816p. These were the daily lows from the past 52 weeks. After a small rally, the Scottish Mortgage share price is once again moving lower, currently trading just above 900p. I’m considering placing an order to automatically buy the stock if it reaches the 52-week low again. At that level, is it a bargain to which I can’t say no?
Reasons for underperformance
The 28% fall in the Scottish Mortgage share price over the past year can be put down to a few main reasons.
Firstly, the investment trust has a majority exposure to US stocks. In fact, as of the end of Q1, 55.4% of the trust was in US equities. UK equities make up just 2.6%. Unfortunately, this weighting hasn’t done that well. Year-to-date, the FTSE 100 is up 1.9%, whereas the S&P is down 14%.
Another reason for underperformance is the specific sectors the the trust is focused on. It has a large exposure to tech, for example via holdings including Tesla and Amazon. This area has experienced a large drawdown over the past few months. Investor have called high valuations into question. Further, even the top tech names such as Amazon are starting to disappoint analysts in recent results.
Value when comparing the net asset figure
If the Scottish Mortgage share price slumps a little lower to the 52-week lows, I do think that I’d buy the shares. Why?
One reason comes from the disconnect between the value of the stocks in the trust versus the share price. The stock market has a habit sometimes of wrongly valuing a company. Usually this is down to fear or greed of shareholders. If a stock is falling, some investors will panic sell, causing the stock to tumble lower than it really should. This makes it undervalued.
I think this is happening with the Scottish Mortgage share price. For example, the estimated net asset value (NAV) of all the stocks held in the fund should put the share price at 930p. Yet it trades at a 4.7% discount to that.
More value in the share price
I also think the company is a bargain close to current levels as it gives me exposure to all the individual stocks. The share price has fallen as the stocks within the portfolio have fallen. Yet it saves me the time and hassle of buying all the portfolio’s stocks individually.
For example, take Amazon. The share price fell 14% last Friday on disappointing earnings. Fundamentally, I still believe in the growth story around the business, so see this as undervalued. Given that Scottish Mortgage holds Amazon as one of its top holdings, I feel this also makes the Scottish Mortgage share price undervalued.
The concern I do have though is that it’s completely out of my hands what investment choices the trust makes. It could sell Amazon shares tomorrow, even though I’d rather it kept them. Or it could buy a stock I think is a waste of time. This is a risk I need to watch for. Yet overall, I’m looking to buy Scottish Mortgage shares in coming weeks around 816p.
