1) To me it seems counter intuitive to buy a stock like VNP which has experienced such a steep appreciation in a short space of time.
Whatever happened to “reversion to mean” ? Surely this phenomenal rise makes the stock more vulnerable to a sharper pull back?
Or are we looking at a company that has a phenomenal runway and this is just the beginning?
2) Are there dangers making purchases based mostly on momentum? I am worried about “jumping on the bandwagon”? and making a FOMO purchase.
3) At what approximate price do you think the risk reward ratio is more favourable?
4) Is there a way of seeing who is actually buying at the moment? i.e General Public or Institutional or Insiders. Can we draw any conclusions from WHO is mostly buying?
My screen is showing a 4.5% insider ownership but NO recent insider purchases
Many thanks in advance for your sharing your thoughts.
1) VNP has increased a lot in the past year (up 56% year-to-date and 270% on a one-year basis), but this alone is usually not a good reason to buy/not buy a stock. For the same reason that looking at a stock that has gone down 70% over the past year, it does not automatically imply it will come back up soon, just like a stock that is up 56% year-to-date will not automatically decline.
Stocks can consolidate and revert to a mean, but if earnings expectations rise much more than initially anticipated, stocks do not need to follow a pre-determined path. This is why we prefer listening to the market, as opposed to trying to tell the market what it should do.
For example, last May, FY2026 earnings were expected at $0.53, then in September it jumped to expectations of $0.64, then in December expectations jumped to $0.88. This reflects a company that is seeing demand and pricing power rise faster than the market initially expected, which is why the price reflects this improvement.
2) There are certainly dangers to purchasing stocks solely based on momentum, and timing can be key, but there are a few key things that help mitigate this risk. The first is position sizing, if a position is sized small enough, if the stock moves materially against an investor, then it is not that detrimental to the overall portfolio. The second is expecting consolidation, after a stock jumps vertically in a short amount of time, some degree of pullback, consolidation, etc. is expected, but it is not necessarily a negative thing, and a temporary 'loss' does not mean the position is 'wrong'.
3) VNP trades at 33X forward earnings, we might see it consolidate in the $24 to $28 range before earnings. We think $22 would be attractive, or $22 to $24.
4) There are insider screens to assess if insiders are buying shares, but it is not automatically a signal that one should buy. A lack of insider buying also does not indicate that it is not going to do well. Overall, we are less concerned with who is buying than if the trend is positive, if fundamentals are growing, if analyst estimates are trending higher, and if it operates in a secular growth theme that we think has upside potential.