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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

sdf

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

High flying easyJet women bring daughters to work to inspire next generation of women in STEM
Investing Articles

In 12 months, a £10,000 investment in easyJet shares could become…

easyJet shares have plunged in value following a profit warning on Thursday (17 July). Can the FTSE 100 travel share…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This S&P 500 blue chip looks far too cheap to me at $183!

Our writer picks out one high-quality S&P 500 stock that is currently the cheapest among the 'Magnificent 7' group of…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Down 23% today! This one’s stinking out my Stocks and Shares ISA

Our writer's wondering what to do with a problem named Ashtead Technology (LON:AT.) in his Stocks and Shares ISA portfolio.

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »

Businesswoman calculating finances in an office
Investing Articles

I’ve just bought this FTSE share…

Our writer explains the thought process that led to him buying this FTSE share. One that’s likely to do well…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Just over £5 now, easyJet’s share price looks cheap to me anywhere under £13.84

easyJet’s share price has dropped recently, which could mean the business is worth less than before. Conversely, it could mean…

Read more »

Trader on video call from his home office
Investing Articles

36% under ‘fair value’ and forecast annual earnings growth of 6%, should investors consider this FTSE 250 stock?  

This FTSE 250 firm is a leader in a growing sector and has secured several new sites to drive its…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 UK shares that have recently become takeover targets

Mark Hartley examines why these three UK shares have become takeover targets and could be bought out by rivals in…

Read more »