As humans, we’re psychologically wired to enjoy stories. When there’s an opportunity to profit from them, we like them even more.
The only trouble with this is that the history of investing is littered with examples of rubbish that is hyped to the heavens before crashing down to earth in flames (and taking our hard-earned money with it).
While tipping my hat to anyone who’s managed to make a profit from it, I’d include Bitcoin within this offending group. Blockchain technology might have value in the future, but the idea of purchasing something that has no inherent value doesn’t sit well with the Foolish philosophy of buying quality companies for the long term. Hence why I was so bearish on the cryptocurrency last December.
To be sure, separating the stock market wheat from the chaff is never easy. That said, I think there are two companies that stick out as being examples of businesses where the hype might actually be justified.
Overvalued and overachieving
I’ve made no secret of my love for robotic process automation firm Blue Prism (LSE: PRSM). Having soared from its 78p IPO price to over 2200p in just over a couple of years, it remains my best-performing holding. I doubt I’m alone.
But here’s the thing: To date, Blue Prism hasn’t made a pound in profit. As a result of its ‘landgrab’ strategy, it’s also unlikely to do so for some time yet. Seen from this angle, it’s easy to see why some continue to mock its £1.5bn valuation.
The trouble is, Blue Prism continues to throw eggs in the faces of its critics. Only last week, the company revealed that its digital workforces — used to complete boring, monotonous tasks that are usually performed by humans — are now employed in over 1,000 organisations across 42 industries in 52 countries. That’s astonishing growth for a company that only came to market in March 2016.
Given the benefits of automation are not hard to grasp (no mistakes, no holidays or sick leave, relatively low-cost, freeing up staff for more creative work), I suspect any attempt to pinpoint Blue Prism’s true valuation is proving more difficult by the day. That’s why the shares might continue their astounding rise for some time yet.
Despite many, including my Foolish colleague Roland Head, questioning its £225m valuation based on conventional metrics, advanced materials engineering group and graphene play Versarien (LSE: VRS) continues to be another hugely rewarding investment for those early to the party.
Contrary to most AIM stocks, the newsflow here rarely stops. Over the last couple of months, the firm has inked agreements with audio equipment firm Media Devil and an unnamed global sports and fashion goods manufacturer. More recently, it was announced that the company had begun collaborating with South Korean-based AXIA Materials, with the view to developing “graphene-enhanced composite materials and smart graphene devices“, specifically related to smart buildings and electric vehicles.
While it’s frighteningly easy to become complacent with high-performing shares — and the old adage of ‘never going broke from taking a profit’ has growing relevance here — these deals certainly give substance to CEO Neill Ricketts’s view that there now exists a “global demand” for Versarien’s products.
With the prospect of up to 24 new China-related deals being announced in the near future, however, I’m staying put.
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Paul Summers owns shares in Blue Prism and Versarien. 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.