A share sale and a cautionary note

I haven't posted on my blog since April for the many reasons that I have already outlined. However, here's a brief update on a fairly recent share sale. The company in question is Cloudcall. It's been a love/hate relationship with this particular company as outlined in my previous blog post over a year and a half ago. Here's the link below:-

http://michae1mouse.blogspot.com/2016/11/another-bad-call.html

As you can see I originally bought shares at around 150p, and perhaps against my better judgement at the time, bought more at prices around 55p. The company had become unloved and many investors abandoned ship thinking all was lost. That is generally the best time to purchase your shares. In the case of Cloudcall, it was a fairly speculative investment and hence I bought a relatively modest holding for me.

In recent weeks, I've taken profits. Overall, I made a healthy 103% profit. Not stellar but I'm happy given it was never a conviction buy.

Whilst all of the bull points I outlined in my previous posts still exist, and the company still appears to be achieving excellent growth, I sold for the following reasons.

I currently sense that some overlooked value/growth stocks offer better value and I felt this week's trading statement was a tad underwhelming relative to a market cap of more than £30m (predicted revenues of just £9m in 2018, still burning cash and making losses). Whilst revenue was up 31% on a comparable basis to H1 2017, from memory it was only up around 11% from H2 2017. Not as impressive, although reasons were given and I assume that they still expect to hit market expectations. In summary progress is slower than I had hoped.

If Cloudcall goes onto multi-bag from here then that would be great for holders, but of course there are always opportunities elsewhere, particularly amongst the micro and small cap companies.

The cautionary note is this. The bull market has been running for a long time now. It may have further to run. We haven't seen irrational exuberance yet, although some instances are now beginning to emerge.

Even experienced investors become complacent in long bull runs and begin to believe that this is the norm. It's not. Firstly, think about interest rates. They are still at historic lows. Even a 1 or 2 point rise from here would be alarming to some people. Those of us old enough to remember have seen interest rates at 10%-15%. Even 3%-5% may send shudders down the spine of some people. 3%-5% would be more normal.

As regards the stock market, my major concern is that many investors have got used to growth stocks on heady p/e values of 50 or worst still are valuing early revenue stocks on multi-million pound capitalisations before their business models have even been proven. Even for growth stocks, a p/e of 25-30 is pretty heady since it implies that they'll increase profits by 25%-30% year in year out. Asos is the exception that proves the rule (although it looks like growth at Asos is now beginning to slow). If growth slowed to let's say 15% a year at Asos and the p/e dropped to 25 then based on 2017 earnings it's share price would plummet to £19.30. Now if you bought Asos early and sold recently then no doubt you're a multi-millionaire that doesn't give a monkey's, but I've used the current share price as an illustration of what happens when growth slows or in some cases doesn't materialise at all.

Finally, back to Cloudcall, I often ask myself would I now buy this company at this market cap. given the current information. The answer was no and I sold. Of course it does depend on your long term view re:possible growth, but as already mentioned, I perceive better opportunities may lie elsewhere.

As ever, it's a personal blog and my opinions are not meant as advice.