Scottish Mortgage shares are trading at a discount vs NAV! Does this make it a buy?

Scottish Mortgage shares are among the most watched on the FTSE 100. The stock gained hugely in 2021, before collapsing in the months to May.

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Scottish Mortgage Investment Trust (LSE:SMT) shares are down 31% over the past 12 months. And that’s pretty reflective of the movements we’ve seen in growth stocks. At one point, Scottish Mortgage was down around 50%, but we’ve seen a resurgence in recent months.

And right now, Scottish Mortgage is actually trading at a discount versus its estimated net asset value (NAV). This is the company’s total assets minus its total liabilities. And a discount means that the market trading price of the stock is lower than the value of its total assets.

I actually recently bought Scottish Mortgage at 700p for my pension, but I’ve been following the share price closely because I had intended to buy this stock for my ISA. So at 918p, is Scottish Mortgage still a buy?

The portfolio

Scottish Mortgage is a publicly traded investment trust that has significant exposure to American, Chinese and unlisted shares. The Scottish Mortgage share price reflects the value of the stock that it holds.

The fund is focused on growth and tech, so it’s not surprising that the share price tanked in the months leading up to May. The trust holds stocks like Tesla, Moderna, Amazon, and NIO.

At the end of trading yesterday, Scottish Mortgage had an estimate NAV of 961p, but the share price only stood at 912p. This infers that Scottish Mortgage shares are cheap and the fund allows me to access holdings in stocks like Tesla and Moderna for less than their market rate. So this is certainly something I’ll bear in mind.

Outlook

Firstly, valuations are looking a lot more attractive than they did a year ago, and that’s because share prices have fallen significantly. While share prices have ticked upwards since May, I think the sector is still trading with valuations that are more acceptable and reflective of growth potential.

That’s a generalisation, but growth stocks aren’t clearly overvalued like they were last year.

For example, one of Scottish Mortgage’s largest holdings is NIO. And the stock has fallen significantly despite the business continuing to grow. It currently has a price-to-sales (P/S) ratio of around five right now, and that is massively down from where it was a year ago. 

So, yes, valuations are more attractive, and the current prices, along with the NAV discount look like an attractive proposition.

But I’m also a fan of Scottish Mortgage because its management has a knack for picking the next big winner. Many of the stocks it owns aren’t listed, but maybe one of those is going to be the next Tesla or Apple.

However, there are risks, as with any investment. With interest rates rising, the environment is becoming increasingly difficult for growth stocks. Higher rates increase the cost of growth. And there are also some pretty negative economic forecasts, particularly in the UK and Europe. So economic downturns might slow the pace of growth for these firms.

Despite this, right now, I think Scottish Mortgage still looks like good value and I’d add it to my ISA today.

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 considered so you should consider taking independent financial advice.

James Fox owns shares in Scottish Mortgage and NIO. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended 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.

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