What happened to the GEM share price?
G8 Education Ltd [ASX:GEM] was a strong growth stock between 2012 and 2014. It became a great stock to short after peaking in mid-2014. Today, the stock price of GEM went down along with many other stocks in the Aussie universe. The Brussels bombing overnight clearly had a negative impact on the market.
Why did GEM shares do this?
The reason for the decline today can be attributed to the shocks from the Brussels bombing, but also because the price of oil dipped overnight. Terrorist attacks do not currently pose a structural threat to the market, as investors tend to discount terrorist events over the longer term.
The general sense on GEM is that the company will see higher revenue and earnings in 2016 and 2017. Market analysts typically see a positive long term growth rate for the company’s business. At the current price, it is not surprising that market analysts tend to have a consensus ‘Outperform’ rating on the stock.
What sticks out the most about the company is its positive business outlook. In terms of P/E, the company is quite attractive. The company has a slightly higher beta than one, indicating that it normally moves more than the market does. The company pays a great dividend relative to the sector.
The company has a manageable level of debt, and it has enough interest coverage.
What now for GEM?
There is some room for active investors to outperform a buy-hold strategy. However, the outperformance is not a huge margin. By active, I mean a long/short strategy. A typical long/short model may have favoured a short position over the last two weeks. A typical long/short investor could have outperformed a long-hold investor by about 15% in the last 26 weeks. It looks likely that the signal for the next week is still a short position.
However, this may change if data adjusts dramatically in the coming days.
Emerging Market Analyst, New Frontier Investor