Up 16.9%, have I missed my chance to buy more Scottish Mortgage shares?

Scottish Mortgage shares have staged something of a recovery over the past 12 months, but will it continue? Dr James Fox explores.

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Scottish Mortgage Investment Trust (LSE:SMT) shares boomed during the pandemic when capital flooded into technology stocks. However, many investors lost a small fortune when the stock lost half its value in 2021/2022.

Nowadays, the stock’s clearly more affordable than it was, trading just under £8 a share. And it’s actually performed rather well over the past 12 months — the stock’s gained 16.9%.

I already own Scottish Mortgage stock for my pension, and I’ve been toying with buying more for my ISA for a while.

So have I missed my chance to buy more Scottish Mortgage shares? Personally, I don’t think so. Let’s take a closer look at why.

Margin of safety

Investors often search for a margin of safety when buying stocks. That often means developing our own valuation for a company and comparing the current price we’d have to pay to buy that stock.

That’s certainly easier when we’re investing in singular businesses rather than funds like Scottish Mortgage. For example, the fund doesn’t have a price-to-earnings ratio and the share price reflects the value of the 35 companies it invests in.

The simplest way to understand how much Scottish Mortgage shares should be worth is the Net Asset Value (NAV). Currently, the estimated NAV is £9.12 per share, inferring the stock is undervalued by 13.8%.

I’d suggest this is a fairly strong indication that the stock’s worth buying at the moment.

It isn’t straightforward

However, investors would be prudent to not always trust the NAVs provided by investment trusts. In the case of Scottish Mortgage, it’s wise to recognise that a large proportion of its investments are in non-listed companies.

For example, Scottish Mortgage’s sixth largest holding is SpaceX. According to reports, Elon Musk’s SpaceX is valued at $180bn, based on a secondary share sale, and I’d assume that’s the valuation used by Scottish Mortgage and analysts when the NAV’s compiled.

The issue is that as investors we don’t have access to all of SpaceX’s fundamental data, so the valuation isn’t ours.

In the case of SpaceX, I’m actually not too bothered by the valuation. Forecasts suggest that revenues are set to increase to around $15bn in 2024, building on the strength of its Starlink operations.

This represents a huge improvement on 2022 when the business reported just $4.6bn in revenue. So on a price-to-sales basis, SpaceX is 12 times 2024 revenues. That’s actually cheaper than Nvidia.

But the premise remains that we should be wary of NAVs when investing in trusts because some holdings don’t have ones established by the stock market.

My take

All things considered, Scottish Mortgage looks like an attractive proposition. However, I do have one final concern, and that’s sentiment. As noted, many investors had their fingers burnt when the stock plummeted a couple of years ago.

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.

James Fox has positions in Nvidia and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Nvidia. 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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