The Scottish Mortgage Investment Trust (LSE:SMT) share price is down 48.3% over two years. That means shares have lost nearly half their value during the period.
We’ve seen a few false rallies to date, but over the past month, the stock is up 7.6%. So am I looking at an opportunity to buy a stock on its way up? Is Scottish Mortgage ready to surge?
What is Scottish Mortgage?
Scottish Mortgage is a well-known investment trust that invests in a diversified portfolio of companies — some are listed, some aren’t.
Managed by Baillie Gifford, the trust has gained prominence for its focus on high-growth and innovative companies, often in the technology and healthcare sectors.
It has a global and long-term investment approach, seeking companies with strong growth potential.
The trust has attracted attention for its significant holdings in technology giants and disruptive innovators.
Investors often choose Scottish Mortgage for exposure to dynamic and forward-thinking companies across various industries.
NAV discount
It’s not easy to identify whether investment trusts like Scottish Mortgage are undervalued.
These are companies that can hold positions in hundreds of stocks, so there’s no collective metrics, such as a price-to-earnings ratio, to work from.
However, one useful method is by looking at the net asset value (NAV), and seeing whether the share price represents a discount or a premium to it.
Currently, Scottish Mortgage is trading with a 14.5% discount to its NAV. In turn, this suggests that every 85.5p I invest, is worth £1.
In fact, the discount to the NAV was even higher during the summer, extending beyond 20%.
The only problem here is that the NAV isn’t always reliable, especially when many of the companies Scottish Mortgage invests in aren’t listed on the stock market.
For example, 4.1% of the portfolio is SpaceX — the Elon Musk company which interests in space technologies and satellites.
In July, the firm was valued, according to reports, near $150bn. The thing is, some people may disagree with this valuation, or other valuations in the portfolio.
Personally, I see the value in SpaceX. Its trading at 16.6 times 2023 revenues, 10 times 2024 revenues, and has huge growth potential.
However, others might not feel the same, and that’s something we should investigate ourselves.
A record for success
The trust has a reputation for identifying and investing in innovative, high-growth companies often before they become widely recognised. In the past, these include companies like Tesla, Nvidia, and ASML.
Despite recent share price fluctuations, Scottish Mortgage’s strategy involves weathering short-term market volatility for potential long-term gains.
I appreciate that James Anderson, who drove Scottish Mortgage’s success in recent years, has moved on. But I believe the modus operandi will remain the same.
I’m not reading too much into the stock’s recent rise. It’s certainly positive as a shareholder, and there’s probably some correlation with interest rates peaking, but it hasn’t change my position, which was already positive.
In short, noting the discount to the NAV and track record, I’m looking to increase my holdings in Scottish Mortgage.
