April SA and the momentum issue

I have written a couple of posts about April SA. In the last post, i decided the following:

At current prices (EUR 14,60 per share) and based on the underlying business developement, the risk/return profile is not attractive enough.

Now the stock price is close to last year’s lows and we certainly don’t see a lot of positve momentum:

After the reading of O’Shaughnessy’s book, momentum is such an important factor, that one should keep way from a falling stock. On the other hand I am quite sure that the business of April is worth much more than the current 10,80 EUR quoted on the stock exchange.

So should I wait until the stock gets more expensive and buy then ? This sounds still very counterintuitive for me. O’S strategy relies on not analyzing the companies but “data mine” for factors to produce historical outperformance.

Does a active value investor really have to wait until the stock gets more expensive before on invests ? I would agree for distressed or turn around companies. But in other cases this “negative momentum” might even create investment opportunities

By the way, April issued a relatively positive trading update for Q1 2012 and a comprehensive presentation in English for the 2011 results and the strategy.

As I really like April’s business model, I will ignore momentum and starting to build a position in APril from today. I will start with 1% and then increase in increments.

Edit: For some strange reason, the stock jumped immeadiately after my posting almost 9%

My limit was 11 EUR, so I did not get any shares and will wait for the time being.


  • I know I will be punished for this but today I increased the limit to 11.50 EUR to start building up the April SA position

  • Organic growth seems to be rare in their industry, and April’s margins are similar to those of major competitors (with the exception of WSH), so I would expect no big improvement here. In the business cycle, they are likely to follow the employment rate.
    On the other hand, looking at the balance sheet and CF, April’s market cap is comparatively low.

    • Hi Welju,

      there is organic grwoth in some sctors (expat health) but not in general. At current prices, howver even a stable business would justify a much higher price.


  • it seems now that the blog moves french midcaps. I will try a large cap next…..

    yes, i think the “stabilizing” argument has something for it. One thing is clear: You should not directly buy into a falling knife.

    So “neutral” momentum would be a good idea.

  • +10% today. What did you do? 😉
    Seriously, it’s difficult for me, too, to follow the momentum lesson, due to logical and psychological reasons, on the one hand – but on the other hand, mechanical strategies (and maybe value strategies in general) only work because of such psychological patterns. Still I am reasoning about the same thoughts than you, about when it is “allowed” to deviate from the mechanical course.
    But you can adhere to O’S and still buy not stocks after they have become more expensive: You could wait until the price stabilized and did not fall further for a while. Then the medium term momentum is at least not negative anymore (that’s not the best, but at least you avoided the lower deciles). If the stock soared in the meantime – bad luck, you will have to wait for the next one.

  • Declining stock prices may indicate weaker estimates of future earnings due to more pessimistic growth estimates of the economy. This means declining value too. If there is a industrial sector indice i would also compare momentum with peers.
    I work with increasing increments too. Sometimes I build 50% of position and wait for next figures, if I am very anxious, to see whether my estimates are right. If other investors dont look for value even good figures dont increase the price and I am more confident to build up the whole position. and if the price rises I dont have earned that much but with lower risk.
    You can also short an indice with peers…

  • I also would ignore momentum. Everything that counts is current price and estimated value of the stock.
    I still can’t see, which sense there should be, to pay attention to price trends. Every price trend stops somewhere in time. And if such a trend is visible, it already lasts for some time, so the reversal is already nearer.

    I can’t, and I do not know anybody who can, predict future stock prices using past price movements. Please let me know, if there is somebody who can do this consistently and is able to earn money with that ability…

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