MR MONEY MAKER: Value is finally coming back into vogue but beware the pitfalls of buying neglected stock
It is encouraging these days to come across an attractive company whose share price is not at an all-time high, especially given the strong market recovery from the nadir of 2020.
However, your first question should be: why has this one been left behind?
Slow burner: Data management company Restore has an AIM listing, so although we may be able to buy shares, we are also dealing in a generally illiquid market
Data management company Restore has an AIM listing, so although we may be able to buy shares, we are also dealing in a generally illiquid market – which means that although there will be a share price quoted, there may be very few buyers or sellers.
For investors this is incredibly frustrating, as although you may have made a paper profit on your investments, you may not be able to crystallise this gain unless you can find a buyer.
This is a lesson that we should all be aware of – illiquid or untradeable shares are potentially very dangerous for portfolios – as we discovered courtesy of Neil Woodford.
Why Does It Matter?
Restore has been left behind by the great miracle share price recovery. This does not mean that it is necessarily a bad share, but there is a reason for it – markets do not suddenly forget about companies!
In this case it is because it is classed as a value stock, as opposed to the supposedly more dynamic (not necessarily) or fashionable (quite likely) growth stock.
This was illustrated last year as the American tech giants bullied the rest of the market. Later in the year, more focus was put on those areas that were seemingly unloved.
Many are in the FTSE 100 displaying more laggardly growth against the ‘flash Yanks’. However this is changing.
What Should I Do?
The neglected areas have been trying to catch up in the UK markets, with the mining and oil companies as well as the utilities garnering more interest.
Restore is seen as a rather slow burner – some would say dull, but I quite like dull if it gives me better value. This company gets involved in mass record storage, and in secure disposal.
Relocation services for companies hardly gets the heart beating and recycling old IT kit seems very worthy but rather dull.
Even so, the latest figures say that Restore remained in the black last year, which in itself is impressive.
Restore stands to benefit from the office shrinkage we are likely to see as more staff continue to work at least partly from home, as this will mean increased demand for its data management and relocation services.
The shares hit their record price peak in January 2018 at 597p. Last year saw them fall to 268p and they are now 399p.
So for me there is further to go and with cash available, the company is well positioned to be buying up financially damaged assets following the slump last year.
However, if you want something less risky, but using the same logic that value stocks are coming back, then the much derided FTSE 100 would be a cheap and easy investment by way of a low cost fund such as the iShares Core FTSE 100 UCITS ETF.