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Why I’d shun bitcoin and focus on this high-flying growth company

Bitcoin has certainly grabbed the attention of many of us, and no wonder. In 2011 the price of one bitcoin stood at $0.30 (that’s 30 cents) and in December 2017 it rose to a high of almost $20,000 (that’s twenty thousand dollars).

Today, after the price dropped back this year, you’ll need to fork out around $7,000 for a bitcoin, which is still a massive increase on the few cents you’d have needed just seven years ago. Whatever is going on to make it so expensive?

In demand or in a bubble?

One argument is that bitcoin and other cryptocurrencies are scarce assets because only a certain amount of them exist, so if demand for the virtual currency outstrips supply, the value will likely go up. If cryptocurrencies ever become mass-adopted for use in the real world, just like the money we are more familiar with, that line of thought might stand up better to scrutiny. However, even then it sounds to me like an unlikely justification for the huge rise in the price of bitcoin. 

I reckon bitcoin is probably suffering from no more than a speculative bubble. Buying pressure has likely forced the price up because people are hearing stories of others getting rich and are then going out and buying bitcoin too. Most bubbles go on to burst and the price comes crashing down again. That looks like it is happening to bitcoin because during 2018, the price chart shows a series of lower highs and lower lows. With precious little other fundamental information to go on, I reckon chart analysis is as good as any other type of analysis when it comes to the cryptocurrencies.

My guess is that we are on the wrong side of the speculative bubble in bitcoin so I’d shun the cryptocurrency now and focus on stocks. One interesting proposition is high-flying specialist chemical company Synthomer  (LSE: SYNT), which delivered its interim results report this morning.

Strong performance

Since 2011, Synthomer’s share price has put in an impressive performance too, rising from around 162p to 538p today. On top of that, investors holding shares in the company have collected a dividend that has increased from 3.5p per share in 2011 to 12.2p per share during 2017. The forward dividend yield for 2018 sits close to 2.4% as I write after the share price moved up around 3.5% on today’s news.

Synthomer supplies aqueous polymers, which it says helps its customers to create and enhance their products in industries such as coatings, construction, textiles, paper and synthetic latex gloves. The figures are good with constant currency revenue 6.4% higher than the equivalent period last year, volumes just over 9% up and earnings per share rising 9.5%. With growth like that coming in, it’s no surprise the directors underlined their confidence in the outlook by pushing up the interim dividend a little more than 8%.

Chairman Neil Johnson reckons the firm’s diversified business means it is “well placed to make continued progress.”  He expects previous growth capital expenditure to yield returns and says Synthomer will “continue to explore both bolt-on and transformational acquisitions in a disciplined manner.” I think Synthomer is well worth your further research time.

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Kevin Godbold has no position in any of the shares mentioned. 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.