What’s in the air: Zoom-Bang-Land?
For those speedy investors, able to see through the Markets’ free-fall confusion, the rise of Zoom has been a stock-pickers dream. Zoom’s current market capitalisation is now greater than that of the 7 largest airlines. Hindsight is a wonderful thing, offering 20/20 perfect vision after the event.
Year-to-date, Zoom’s share price has risen from $68 to $200. Its revenues are just shy of $700m. Yet, Zoom’s P/E ratio is over 300; and its current valuation is 37 times 2024 forward revenues;
It begs the question: is it the same air that continues to lift Zoom, while creating a downdraught for the airlines?
Furthermore, this situation raises fundamental issues for any investor in Zoom, the BEACH (especially Airlines) sector and generally.
What valuation methods really matter? A apposite question in a world were classical methods and approaches are not being followed, even by Central Bankers.
Is Zoom’s valuation robust and justified? A case can be made both for and against its current share price, either way. For another perspective: As an option: a $150 ‘put’ in June is trading at $2.75, July at $6.00 and August at $9.80.
While the Airline sector, never a particularly attractive one in general, does have some individual companies with share prices that seem overly depressed (eg IAG, EasyJet, Southwest). What constraints and doubts are causing this undue depression? Are they justified? For instance, IAG’s share price has already recovered in the last 10 days; from a £163p point and is now trading at about the £210p level.
How to spot those ‘depressed’ sectors, and more importantly stocks within them, that are overly penalised by market dynamics? Are theses sectors: Oil; Real Estate; Retail; Pharma; other(s)?
Has the crisis ended, with the market entering a period of sustained recovery? If so, on what basis can one make such an assertion?
A careful investor - while understanding the general market dynamics, choosing a sector/stock well and paying attention to entry/exit timing - would seem best served by an investment strategy that laddered-in ‘put’ and ‘call’ options around a core equity investment. Such an approach provides controlled flight through turbulent skies.
Feel free to contact us at Gate.