Back when Sirius Minerals (LSE: SXX) was first hitting the headlines over its potash discovery under the North York Moors, I speculated that we could be in for a roller-coaster ride.
Production was expected to be years ahead, and ‘profit tomorrow’ growth shares are typically highly dependent on news flow — they spike on news, then fall back when nothing is being reported.
Sirius is dealing with this by giving us quarterly updates — with the latest 2 July update essentially saying everything is still going according to plan, which is reassuring.
But the shares have still been gyrating wildly. They peaked at 45.5p in August 2016, only to crash back to less than half of that a few months later. I was pleased by that retrenchment and bought in at 18p, but by no means do I see today’s 33p price as a successful result at this early stage — there’s still plenty of risk.
Can you improve your profit potential by buying in the dips? In one sense, clearly you can — if Sirius shares climb to 100p, buying today would treble your money, while I’ll be on a five-bagger, and those who bought in early 2015 could have multiplied their cash 13-fold. Meanwhile, anyone who bought at the peak, while down today, would still have more than doubled their money.
Looking at these price points, we’re talking about turning each £1,000 invested into anything in the range of £2,000 to £13,000 — and it’s easy to see which end of that scale would get you to a millionaire’s retirement the soonest.
But the hard bit is the next step — knowing today how to profit from possible future dips. And we all know how hard it is to time the market (which I know only too well after buying Premier Oil at 99p in 2015 with what I hoped might be good timing, only to see the shares plummet to 19p!)
So how would I go about investing in Sirius Minerals right now?
Good value today?
First off I’d decide whether I think there’s a sufficient margin of safety in the current share price. That’s not easy with a company that’s not yet profitable, but fellow Motley Fool writer Rupert Hargreaves reckons the shares could hit 60p this year.
Somewhat speculative at this stage, but I think Rupert is basing his valuation on some solid rational thinking. In particular, Sirius is doing very well in getting sale agreements signed, and progress towards the crucial next phase of funding looks to be progressing well.
With that in mind, I still see Sirius shares as good value at today’s price — and Sirius is very much still on my list as a potential top-up for when I next have free cash. If I had a significant amount to invest in Sirius shares right now, I’d be tempted to split it into several purchases over the next few months (providing they’d be big enough with respect to charges to make it cost-effective), and also buying some today.
It would definitely be a bit of a gamble, but it’s one I think I’d be happy to take, safe in the knowledge that I already have some shares bought at a much cheaper price. But the bottom line for long-term investors has to be to base your decision on the current valuation.
Alan Oscroft owns shares of Premier Oil and Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. 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.