The Scottish Mortgage (LSE:SMT) share price has performed well in recent months. In fact, it surged late last year with double-digit growth in December.
So, is Scottish Mortgage still cheap? Let’s take a closer look.
Discount versus the NAV
A Net Asset Value (NAV) discount occurs when the market price of an investment fund’s shares is lower than the calculated NAV per share. This discount is expressed as a percentage of the NAV.
Investing at a discount can clearly be advantageous, providing investors with a margin of safety, with potential for price appreciation, and an opportunity to benefit from temporary undervaluation.
Currently, Scottish Mortgage appears to be trading with a discount around 10%. At the time of writing, the share price is at £7.68, while the estimated NAV is £8.67.
However, such a discount can be a warning sign of investor concerns.
With Scottish Mortgage there are two things that stand out. First, investors may be worried about the stock underperforming/tanking again.
In 2021/22 the trust lost half of its value as tech stocks fell and investors pulled away from Scottish Mortgage.
Currently, there’s little sign that it could happen again, but some investors had their fingers burned and may not want to return.
Second, around 25% of the trust’s investments are in unlisted companies. And that means that there’s no reliable market value for these companies.
Instead investors have to trust in the valuations assigned to these businesses by Scottish Mortgage or the companies’ management.
It’s a macro perspective
When it comes to trusts, it’s almost impossible to carry out in-depth research on the entire portfolio. This is why funds exists — to research and deliver a portfolio of stocks.
So, as an investor, I’ve learned to look at three things.
Number one is what do I think of the top holdings? Well, looking at the top 10, I like Nvidia and I like Space X. But I’m not too keen on Tesla or Moderna. I’m also not convinced that Ferrari has too much growth left in it.
However, moving on to the second point, Scottish Mortgage has an excellent track record of picking the next big winner. Companies like Tesla were added to the portfolio before they were household names. So, maybe I should have faith in the trust that has seen 1,898% growth over the past three decades.
Finally, I’ve got to look at a more macro perspective. Scottish Mortgage has a broad (but hopefully well-chosen) selection of companies in growing markets, including space, EVs, and biotechnology.
In conclusion, I certainly don’t think it’s expensive. And if I have a long-investment horizon — in other words I’m not looking to cash out for a long time — it could be a great time to buy.
I already hold Scottish Mortgage in my SIPP, and I’m looking for opportunities to add it to my Stocks and Shares ISA.
