Having announced the launch of the Apollo Investment Cycle some weeks ago, today we announced the actual launch of our proprietary Investment Cycle that allows an investor to understand and visualise as a stock, sector or market moves from De-rating to Value, to Re-rating, then Growth.
We introduced The Cycle in a previous post but we thought it useful to provide a contemporary example of how we might use such insights related to the ‘opening up of China. Over the last year, we’ve been asked our views on both Tencent and Alibaba as investors seek a moment to buy as both stocks traded ever lower for China related reasons.
At the risk of over generalisation, a rule of thumb would be to avoid buying stocks undergoing the period of De-rating or / and entering the Value phase, particularly when the news surrounding the stock has been as negative as it has for both Tencent and Alibaba.
Wind forward to the present day and because of recent events in China we are fielding questions around both stocks – ‘what is Apollo saying?’
For the first time in a long time we can show that Alibaba has entered the Re-rating phase – A stock that has a re-rating factor categorisation is a stock where the trend in the discount rate that the market is currently applying to the future cash flows of the company (based upon the Apollo measure of implied cost of capital) is clearly falling and likely to persist in doing so. Typically, this occurs when the cashflow outlook for a company is showing some signs of improving and investor confidence is increasing as a result.
For a prospective buyer, that’s what you want to hear!