Scottish Mortgage Investment Trust (LSE:SMT) shares are among the most beaten up on the FTSE 100. The growth-focus trust has seen its market cap fall below £10bn, and the shares now trade at 650p — less than half of where they were during the pandemic.
It’s also worth highlighting that the fund’s shares also trade at a 21% discount to their net asset value (NAV). So, is it time to revisit Scottish Mortgage and snap it up?
Net asset value
Net asset value represents the per-share value of a company’s total assets minus its liabilities, divided by the total number of shares outstanding. So, when Scottish Mortgage shares are trading lower than its net asset value, it means that the market value of the stock is lower than the value of its underlying assets.
Surely, this means Scottish Mortgage is a bargain?
Well, maybe. But this situation can occur due to various reasons, such as market perception, investor sentiment, negative forecasts, or temporary challenges faced by the company. It could also be a result of undervaluation by the market or a lack of investor awareness about the company’s true worth.
For value investors, a stock trading below its NAV can be seen as an opportunity to buy the stock at a potential bargain price. As value investor extraordinaire Warren Buffett believes, over time, an undervalued stock’s share price should converge with its intrinsic value, resulting in capital appreciation.
So, at this time, I can buy £1 worth of Scottish Mortgage’s assets for just 79p.
A value trade?
For me, the discount partially suggests that the market is bearish on the fund’s ability to perform going forwards. Investor sentiment likely plays a large part here. Growth stocks, along with Scottish Mortgage shares, tanked in late 2021 and early 2022. It may be a case of UK investors not wanting to get their fingers burnt again.
We can also deduce that the discount could represent concerns about the state of the market in the coming months. Growth stocks have outperformed this year. But the macroeconomic environment doesn’t appear overly conducive to growth.
But it’s also worth highlighting that while 70% of the fund’s holdings are public stocks — simple to value as they have a market price — about 30% are private investments. These private investment, in companies such as SpaceX, are harder to value because they have no listed market price. In turn, this means there could a be price discovery at some point, which may turn out to be lower than expected.
Holding
I already own Scottish Mortgage shares in my pension — naturally, this portfolio has a very long-term investment strategy.
The fund has an excellent track record of picking the next big winner before we’ve even heard of it. That’s why it became the UK’s biggest publicly traded investment trust during the pandemic.
So, I’m holding my shares, which are down slightly, in my SIPP. They’ve got a lot of time to turn that red into black. However, given the uncertainty in the current market, I’m not buying any more shares.
