Scottish Mortgage Investment Trust’s (LSE:SMT) share price just crashed to its cheapest for almost three years. And at current levels of 623.2p, the FTSE 100 firm looks (at first glance, at least) quite the bargain.
Today, its net asset value (or NAV) — which is the value of all its assets minus liabilities — stands at 779.55p. This is a 20%+ premium to what the trust’s shares trade for on the London Stock Exchange.
So what’s the lowdown on this beaten-down FTSE share? Is it now too cheap to miss?
Sector rebound
To recap, Scottish Mortgage Investment Trust is loaded with tech-based growth companies in the US and China. These range from electric vehicle manufacturer Tesla, to online commerce and entertainment giant Tencent and graphics card producer Nvidia.
Share prices across the tech sector fell sharply in late 2022 on fears of an industry-wide slowdown. But sentiment for these growth shares has improved markedly in recent months, as illustrated by the Nasdaq’s 18% rise in the year to date.
Peter Garnry, head of equity strategy at investment platform Saxo, noted that improving market sentiment has been “driven by falling interest rate expectations, animal spirits, and rising earnings expectations for technology companies because of intensive cost-cutting and better than expected economic growth”.
And he added: “Layoffs lift longer-term operating margin expectations, so as long as the economy does not slip into a recession the marginal net effect of these layoffs is very positive for shareholder returns.”
Uncertain outlook
But the tech sector isn’t out of the woods just yet. Key economic data remains choppy and a recession in US and Europe remains a possibility.
The prospect of a sharp economic slowdown isn’t the only obstacle for the tech sector either. With high inflation persisting, central banks could keep tightening policy in a further blow to company earnings.
This week the Federal Reserve hiked interest rates for the 10th consecutive time and to 16-year highs. The European Central Bank meanwhile also raised its benchmark again. The increases could keep coming on both sides of the Atlantic well into 2023, given sticky inflation.
So what now?
I’m concerned that this uncertain outlook isn’t reflected in the valuations of a great many tech stocks. This in turn leads me to question whether Scottish Mortgage’s share price is the bargain that it appears at first glance.
The trust’s continued share price decline as broader sentiment for tech stocks improved is another red flag to me. As my Foolish colleague and Scottish Mortgage shareholder Charlie Carman recently noted, the firm is also highly invested in unlisted companies.
Such businesses are notoriously difficult to value. And gathering information on them can often be harder than finding details on listed companies. So it makes me worry that something could be going on under the bonnet that I’m not aware of.
Scottish Mortgage’s continued share price fall as the Nasdaq rebounds certainly suggests major problems could be occurring at the firm. And like any sensible investor, I won’t buy shares in any company that I don’t know inside out. Right now, I’m happy to look for other beaten-down stocks to buy.
The post Are Scottish Mortgage shares the FTSE 100’s best bargain? appeared first on The Motley Fool UK.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Tesla. 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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