Scottish Mortgage shares have slumped 40%. Time to buy now?

Scottish Mortgage Investment Trust (LON: SMT) shares have rewarded shareholders well in recent years. I’m thinking of buying now they’re down.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Scottish Mortgage (LSE: SMT) shares have fallen 40% so far in 2022, after climbing in 2021. In fact, the shares are down 50% since their 52-week high in November.

This is Baillie Gifford’s flagship investment trust we’re taking about here. It invests in a diversified portfolio of US growth stocks that I see as riskier individually. So what’s the reason for the slide, and should I buy now?

The Scottish Mortgage share price chart for the past 12 months is not pretty:

It looks like it’s all down to a falling out with technology, including biotech. A whole raft of companies in those areas have faced a big sell-off this year as economic woes have escalated.

Scottish Mortgage holdings

Companies like Tesla, Moderna, Illumina, ASML… they’ve all been falling. And those four are among SMT’s top 10 holdings, as of 31 March.

Growth stocks like these are often valued on high price-to-earnings (P/E) multiples. Even now, for example, Tesla is still on a trailing P/E of over 100. That means it would take 100 years of last year’s earnings to cover the value of the shares.

To put that into some kind of perspective, the average P/E of the Nasdaq, America’s tech stock index, is only around 21. Apple‘s is 24.

Looking at other stocks in SMT’s top 10, Nvidia is down 40% since the start of the year, Alibaba has dropped 26%. Even mature online retailer Amazon has lost 32%. The remaining three are Tencent, Kering, and Meituan.

Growth investing

Those 10 stocks made up 44% of SMT’s total holdings, so it’s no wonder Scottish Mortgage shares have fallen in 2022 too. But what can we learn from it? I’m also wondering whether it’s a good time to buy now. I think it just might be.

The first lesson for me is that I would only invest in high-value tech stocks if I was prepared to take this kind of hit from time to time. My approach to overcoming such hurdles in my investing is to stick with it for the long term.

Long-term SMT performance

Even after the big 2022 tech stock sell-off, the Scottish Mortgage Trust share price has still just about doubled over the past five years. The FTSE 100, by comparison, has gained only 0.5%.

And over 10 years, we’re looking at a gain of 445% for SMT, with the index managing just 40%.

Growth stocks do tend to go through cycles. They often go through ups and downs, and the downs can be great times to buy.

Buy now?

Right now, I’m seriously thinking of buying SMT shares. They’re on a discount to NAV of 8.4%. That just means the shares are priced at 8.4% less than the value of the assets they represent. I’m also drawn to the current Nasdaq valuation, which does not look high right now.

Against that, the outlook for tech shares could be weak for a few years now. I need to do more research before I decide.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML Holding, Amazon, Apple, and 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.

More on Investing Articles

Investing Articles

Should I still be cautious about Rolls-Royce shares?

Rolls-Royce shares are flying. But is now the time for this Fool to open a position? Here, he explains why…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Is the Diageo share price coiled to rebound?

Christopher Ruane explains why he remains bullish about the long-term outlook for the Diageo share price and would happily invest…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

How I could make a 10% yield for high passive income a reality

Jon Smith explains how he can target high passive income from top-yielding stocks, including one specific example he'd consider.

Read more »

Investing Articles

I’d buy 1,784 shares of this FTSE 100 stock to target £350 of monthly passive income

Muhammad Cheema takes a look at how British American Tobacco shares, with a dividend yield of 10.1%, can generate a…

Read more »

White female supervisor working at an oil rig
Investing Articles

1 ex-FTSE 100 stock that I think will get promoted soon

Jon Smith flags up an energy stock that used to be in the FTSE 100 and currently has strong momentum…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

With an 8% dividend yield, I think this undervalued FTSE stock is a no-brainer buy

With an impressive yield and good track record of payments, Mark David Hartley is considering adding this promising FTSE share…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,500 in savings? Here’s how I’d try to turn that into £1,809 a month of passive income

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends paid can generate significant passive income over time.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Dividend star Legal & General’s share price is still marked down, so should I buy more?

Legal & General’s share price looks very undervalued against its peers. But it pays an 8%+ dividend yield, and has…

Read more »