Tag: Motley Fool

In late morning trade the S&P/ASX 200 Index (ASX: XJO) has followed the lead of U.S. markets and is sinking lower. At the time of writing the benchmark index is down 2% to 5,885.8 points.

Four shares that have defied the selloff and pushed higher are listed below. Here’s why they are climbing higher today:

The BrainChip Holdings Ltd (ASX: BRN) share price is up 14% to 83 cents. Investors continue to buy the artificial intelligence technology company’s shares after it announced a collaboration with VORAGO Technologies at the start of the month. This collaboration  intends to support a Phase 1 NASA program for a neuromorphic processor that meets spaceflight requirements. Today’s gain means BrainChip now has a market capitalisation of over $1.25 billion. Given its limited cash balance, I suspect the company may take advantage of its remarkable share price rise with a capital raising in the near future.

The Codan Limited (ASX: CDA) share price is up 1% to $10.98 after announcing a major new contract win. This contract is with a large African government to supply tactical communications equipment. Management advised that the contract has a value in the order of US$10 million and includes the supply of Sentry-HTM radios and accessories. It expects this order to be delivered in the second half of FY 2021.

The IPH Ltd (ASX: IPH) share price has climbed over 2% to $6.80. This is despite there being no news out of the intellectual property services company. However, late last month analysts at Goldman Sachs slapped a buy rating and $8.90 price target on the company’s shares. Some investors may believe it is a bargain buy and one to snap up during the volatility.

The Nufarm Limited (ASX: NUF) share price is up 3% to $4.25. This is the second day in a row of solid gains for the agricultural chemicals company. The catalyst for this appears to be a broker note out of Morgans this week. Its analysts upgraded Nufarm’s shares to an add rating with an improved price target of $4.85. While it expects a soft FY 2020 result later this month, its analysts suspect that this could be the bottom of the cycle.

More reading

• ASX 200 down 2.4%: Afterpay (ASX:APT) and Oil Search (ASX:OSH) sinking lower
• Brainchip (ASX:BRN) share price jumps 15% after ASX query
• Codan (ASX:CDA) share price charges higher on major new contract win
• Why BrainChip (ASX:BRN) and Recce (ASX:RCE) shares just hit record highs
• ASX 200 rises 1%, CSL (ASX:CSL) leads the way

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why BrainChip, Codan, IPH, & Nufarm shares are climbing higher today appeared first on Motley Fool Australia.

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Did you see the news?

Apparently Tom Waterhouse – yes, that Tom Waterhouse – has gone from bookie, to racing tipster and now wants to start a funds management business.

Cue much guffawing.

What does Tom Waterhouse know about stocks?

How could he possibly be a fund manager?

Hahahaha!

And yet…

I’m no fan of bookies.

Or racing tipsters.

Gambing on horse races is a zero-sum game.

If I win, you lose.

Actually, it’s worse than that.

If I win, you lose more, because the house takes its cut, too.

And unfortunately, there are more than a few people addicted to the punt, and for whom gambling is the cause of much unhappiness, poverty and breakdown.

And yet…

The simplistic ‘What would an ex-bookie know about stocks’ is, well, simplistic.

I have no idea what Tom Waterhouse knows – or doesn’t know – about investing.

Maybe he’s just looking to parlay his name recognition into a new field.

Maybe he’ll be terrible at it.

Maybe he’ll employ others to do the hard work.

Or maybe he’ll be great.

Time will tell (and, based on what he was quoted as saying in The Australian yesterday, he’s going to give himself time to earn a track record before putting out his shingle, so he should get credit for that).

Now, here’s what’s supposed to come next.

As someone in the investment community, I’m supposed to point out the difference between investing and gambling.

I’m supposed to say ‘gambling’ with a sneer, clearly letting you know that as an investor, I’m superior in almost every way.

See, I’m not one of them. I’m one of the good guys.

But man, there are few things I dislike more than arrogance and smug superiority.

Especially when it’s not warranted!

Let me introduce you to one of the best investors in the last half-century.

His name is Charlie Munger, and he’s Warren Buffett’s right hand man.

Not only is he a billionaire and a polymath, he’s about as close as it gets to investing royalty.

Tell ’em what you said, Charlie:

“We look for a horse with one chance in two of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is.”

Well, that’s inconvenient for the ‘investing isn’t gambling’ crowd, huh?

To be clear, though, what those sneering investors are doing is playing on our preconceptions of those words.

If someone says “taking a gamble”, we assume they mean “doing something that probably won’t work”.

When they say “that’s gambling”, they mean “good luck, loser!”

And maybe that’s fair enough.

To be sure, the outcomes from – and let’s put those terms aside for a minute – buying and holding shares in quality companies are likely to be better than trying to earn a positive return from a horse race where the outcome is less than zero-sum, after allowing for the house’s take.

Or, put more simply: History suggests that owning shares is more profitable than playing roulette, blackjack or trying to pick a winner in the 6th at Moonee Valley.

So, yes, I’d rather people invest in shares than get on the punt.

But that’s not to say they’re mutually exclusive pastimes.

Indeed, as Munger points out, both are an exercise in probability.

More specifically, in risk and return.

That ‘sure thing’ that got beaten on the weekend? It’s the equivalent of the ‘can’t lose’ blue chip stock your broker recommended that, well, lost.

The rank outsider that paid 30-to-1? Meet Afterpay, whose shares went up 10-fold after the market lows of late March, and that were up 30-fold in three short years.

And yes, the 100-to-1 long shot shares more than a little in common with that biotech hopeful or luckless gold explorer that never seems to deliver.

But good investing shares a lot in common with professional gambling.

Both require a thorough understanding and assessment of the odds: the risk and potential return.

Both require a diversified portfolio – of companies or bets – in the full knowledge that some of them will go badly.

Frankly, the professional gambler is more an investor than the novice day-trader who believes they can beat the market.

The professional gambler is more an investor than the bloke who buys stuff because their mate suggested it, because it’s going up, or because everyone is talking about it on some free internet forum.

I hope that makes you uncomfortable. Not because I’m telling you that you’re wrong, per se, but because I hope it leads you to reassess how you invest.

The aim of investing isn’t to find ‘sure things’.

No, not because that’d be bad, but rather because it isn’t possible.

There are no ‘sure things’ – in investing or anywhere else (setting aside death and taxes, that is!).

But rather because the investor’s job is to try to get a handle on the risk they’re taking, as well as the return they’re being offered.

If you were offered a 1% return, you’d better hope the investment is about as risk free as they come!

If you were offered 80%, you should assume there is a very, very high chance of doing your dough.

But if you were offered, as Charlie Munger suggests, a 50% chance of a 3-to-1 payout, you should take it.

But first, remember that a horse with a one-in-two chance of winning will actually lose half the time! 

Munger would be the first to say you shouldn’t put all of your eggs in that one basket.

What he didn’t say – but those who know Munger’s work would safely suggest he meant – was that he wouldn’t want just one horse, nor a single bet. 

Munger would want a heap of those mispriced bets. Because he knows that as long as he’s calculated the odds successfully, the average return from a collection of similar bets will be very, very good.

I have no idea whether or not Tom Waterhouse will be a good investor.

But what I expect is that years of working as a bookie, and being part of a racing family, should have endowed him with a very good understanding of risk and return.

There are worse ways to learn something that many ‘investors’ take many years to learn, or never learn at all.

Fool on.

More reading

• Codan (ASX:CDA) share price charges higher on major new contract win
• Gold Road (ASX:GOR) share price runs lower on HY20 results
• Why the PointsBet (ASX:PBH) share price tumbled 21% lower today
• No savings at 50? I think these tips can help you retire early with stocks
• 3 small cap ASX growth shares I’d buy with $1,000

Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Codan Limited (ASX: CDA) share price is pushing higher on Wednesday following the release of a positive announcement.

In morning trade the electronics products company’s shares are up over 2% to $11.07. This compares to a 1.9% decline by the S&P/ASX 200 Index (ASX: XJO).

This latest gain means the Codan share price is up an impressive 52% since the start of the year. $7.29

Why is the Codan share price pushing higher today?

Investors have been buying Codan shares this morning after it announced a major new contract win for its Codan Communications business.

The Codan Communications business designs and manufactures mission critical communications equipment for global military and public safety applications. These solutions allow users to save lives, enhance security, and support peacekeeping activities across the globe.

According to today’s announcement, Codan Communications has won a contract with a large African government to supply tactical communications equipment.

Management advised that the contract has a value in the order of US$10 million and includes the supply of Sentry-HTM radios and accessories. It expects this order to be delivered in the second half of FY 2021.

It commented: “This is a significant contract for Codan, as it reinforces our strength in providing such equipment to the African market and enhances our strategy to successfully penetrate the security and military sector globally.”

The government customer intends to deploy Sentry-HTM radios for national security purposes in military operations in a country-wide program. It notes that the contract is a one-off purchase, and there are no material conditions that are required to be satisfied prior to delivery.

Management also advised that the customer has an investment-grade credit rating with a stable outlook. Nevertheless, given the current economic environment, its longstanding policy of mitigating credit risk either through a letter of credit or appropriate credit insurance will be followed.

More reading

• Why Codan’s share price has leapt 33% higher so far in August
• These ASX shares were top performers last week
• Why Afterpay and these ASX shares just hit record highs
• Codan share price soars 16% thanks to record sales
• Why Afterpay, Codan, IDP Education, & Sonic shares are charging higher

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The Gold Road Resources Ltd (ASX: GOR) share price has moved lower after an early trade peak despite the release of positive HY20 results.

At the time of writing, The Gold Road share price has dropped 0.53% to $151 after an peak of $1.55 in early morning trade. This compares to the S&P/ASX 200 Index (ASX: XJO) which is down 2.1% after a market sell-off in the United States overnight.

Let’s take a look at the gold miner’s results for the first half of the financial year.

How did Gold Road perform in FY20?

For the six-month period ending 30 June, Gold Road produced 131,460 ounces of gold at an all-in sustaining cost of $1,186 per attributable ounce. This was led by its Gruyere Project starting commercial production on 1 October 2019.

Operating cash flow came in at $59.6 million, up 465% from $12.8 million on the prior year. The increase resulted from gold sales revenue at the Gruyere Project.

Gold Road sold 60,400 ounces of gold at an average price of $2,237 per ounce, thanks to the rising spot price of gold. This reflected revenue from gold sales of $135.1 million for the first half of the year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) totalled $61 million compared with a $23 million loss on the prior year.

Consolidated net profit after tax was $23.4 million vs a $16.9 million loss in HY19.

The mid-tier gold miner recorded a strong balance sheet with cash on hand $73 million, and debt free after paying $25 million of borrowings on 21 July 2020.

What did management say?

Managing director and CEO Duncan Gibbs was pleased with Gold Road’s result. He said:

June saw us celebrate our first year of gold production at Gruyere… We are seeing some positive signs in terms of throughput and recoveries, but we are still on the journey of improving plant availability as we continue to transition into fresh rock. The strong cash flow performance at Gruyere has enabled us to pay down all our debt within less than 10 months from declaring commercial production and this leaves us in a very strong position.

Mr Gibbs went on to say the company was continuing an exploration push in the underexplored Yamarna Greenstone Belt.

The half year saw us realign strategy to increase the likelihood of us making meaningful discoveries, as befits a company of our size. The relatively shallow aircore drilling completed so far this year will lead to deeper bedrock drilling of new targets over the coming 6 to 12 months.

About the Gold Road share price

The Gold Road share price has risen 190% since falling to its 52-week low of 80.5 cents in March. From reaching an all-time high of $2.02 achieved in July, the Gold Road share price is up 11% since the start of the calendar year.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Half of ASX 200 stocks at risk as China-Australia relations hit new low
• ASX 200 rises 1%, CSL (ASX:CSL) leads the way
• Latest ASX stocks top brokers are urging you to buy today
• ASX 200 up 0.95%: Big four banks rise, Scentre collections improve, Nufarm jumps

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The PointsBet Holdings Ltd (ASX: PBH) share price is back from its trading halt and is dropping lower on Wednesday.

At one stage the sports betting company’s shares were down as much as 21.5% to $10.73.

They have since recovered a touch but are still down 14% to $11.80 at the time of writing.

Despite this decline, PointsBet’s shares are still up a massive 275% since the start of the year.

Why is the PointsBet share price crashing lower?

This morning PointsBet returned from its trading halt following the successful completion of the institutional component of its fully underwritten 1 for 6.5 pro rata accelerated renounceable entitlement offer.

According to the release, the institutional entitlement offer closed on Tuesday and raised gross proceeds of approximately $70.5 million. Approximately 55% of eligible entitlements were taken up by existing shareholders, with the remainder snapped up following a bookbuild of shortfall shares.

The latter attracted strong demand from both existing and new institutional, professional, and sophisticated investors. So much so, the final clearing price under the institutional shortfall bookbuild was $12.50, which represents a premium of $6.00 to the entitlement offer price of $6.50 per share.

PointsBet will now push ahead with the retail component of the entitlement offer and expects to raise approximately $82.7 million.

Combined with its already completed $200 million institutional placement, this will bring the total raised to approximately $353 million.

Why is PointsBet raising funds?

The company is raising these funds largely to support its US marketing activities over the coming years.

PointsBet recently announced a major agreement with NBC Universal which includes a committed marketing spend of US$393.1 million over five years.

Management also plans to use the funds for technology and platform development and US business development. The latter includes market access and government licensing fees and sportsbook fit-out costs.

More reading

• Top ASX growth shares to buy in September 2020
• Why PointsBet launched a $353 million capital raising
• 4 of the best ASX shares to buy before 2021
• Top brokers name 3 ASX shares to sell next week
• Why Brainchip, De Grey Mining, Nufarm, & Pointsbet shares are storming higher

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Buying cheap stocks today to retire early may not seem to be a sound strategy at first glance. After all, a second stock market crash could be ahead due to a weak global economic outlook, as well as the risk of a further rise in coronavirus cases.

However, investing in a wide range of high-quality businesses today for the long run could enable you to benefit from the stock market’s recovery potential.

Over time, this may help you to build a surprisingly large nest egg, even from a standing start at age 50, that provides you with a generous passive income in older age.

Retire early with a long-term focus

Building a nest egg that enables you to retire early will take a considerable amount of time. However, at age 50, you are likely to have sufficient time to do so. After all, you are likely to have at least a decade or more through which to use the stock market’s growth potential to build a retirement portfolio. As such, even if stock prices come under further pressure in the coming months, there is likely to be enough time for them to recover in time to boost the prospect of bringing forward your retirement date.

A long-term focus will allow you to take advantage of favourable buying opportunities at the present time. The recent market crash has caused a number of stocks to trade at cheap prices. While they may move lower in the short run, they could provide long-term investors with the opportunity to buy bargain stocks that offer turnaround potential. Over time, they may produce higher returns than the wider market’s long-term average, and could have a positive impact on your retirement plans.

A diverse range of quality stocks

Of course, economic uncertainty means that not all stocks will help you to retire early. There may be some sectors and/or businesses that are unable to deliver strong profit growth – especially since the outlook for many industries is currently very uncertain amidst a period of weak economic performance.

Therefore, it is logical to buy a diverse range of businesses within your portfolio. This can reduce your reliance on a small number of companies, while also providing exposure to a wider range of sectors that may boost your portfolio’s return profile.

Furthermore, buying high-quality stocks may help you to retire early. Companies with wide economic moats, sound finances and clear growth strategies may be better able to strengthen their market positions in the aftermath of the market crash, and deliver improving profitability that leads to a rising stock price. Over time, they may outperform the stock market and make a large positive contribution to your portfolio’s performance, thereby allowing you to bring forward your retirement date.

More reading

• 3 small cap ASX growth shares I’d buy with $1,000
• Dave Portnoy lost $700k overnight on plunging Nasdaq but remains “cool as the other side of the pillow”
• Is the Xero (ASX:XRO) share price a cheap buy?
• Why the Tesla (NASDAQ:TSLA) share price just crashed 21% lower
• Why the Carsales (ASX:CAR) share price could boom in 2021

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Small cap shares are often regarded as more speculative and higher risk/reward investments due to the size of the company. However, these three small cap ASX growth shares have all taken significant strides forward and, I believe, are worthy of a closer look. 

3 ASX growth shares I’d buy

1. Selfwealth Ltd (ASX: SWF) 

Selfwealth is Australia’s fastest-growing share trading platform for retail investors and leads the market with its $9.50 flat-fee brokerage. Its award-winning flat fee is not only great value but Australia’s only flat-fee broking platform. FY20 has been a significant growth period for Selfwealth with its revenues soaring 313% to $8.6 million and active traders increasing by 235% to 46,445. The company is fast approaching cash flow positive with FY20 cash burn sitting at $147,000, down from $3.4 million. COVID-19 has accelerated tailwinds for brokers with an uptick in general interest for the markets and investing. The platform intends on expanding its services to include United States trading in 1H21. The US market is the most popular international market for Australians. With a clear value proposition for customers, Selfwealth could be a small cap ASX growth share worth looking into. 

2. Bigtincan Holdings Ltd (ASX: BTH) 

Bigtincan is a sales enablement platform that helps organisations grow customer engagements into long-term valued relationships. This involves sales content management, sales training and coaching, document automation and internal communications software. The company continued to deliver on its growth strategy with a 56% increase in revenue to $31 million while annualised recurring revenue increased 53% to $35.8 million. Its key achievements for FY20 include three acquisitions to grow its capability in data science, infrastructure for scale and extended investment into UI/UX. At this point in time, the company expects revenue to be in the range of $41-44 million and ARR to be in the range of $49-53 million for FY21. Despite its market capitalisation of around $450 million, this ASX growth share has a comfortable cash position of $71.9 million which will allow it to explore potential M&A opportunities. 

3. Money3 Corporation Limited (ASX: MNY) 

Money3 is a specialist provider of consumer finance for the purchase or maintenance of a vehicle in Australia and New Zealand. Its unique business model and approach to customer care attracts customers that are often under serviced by mainstream banks. The company has over 50,000 active customers in ANZ with over $1 billion in vehicles financed since inception. Its FY20 performance was solid, with a 35.3% increase in revenue to $124.0 million and 30.1% increase in NPAT. The company has demonstrated a 5-year compound annual growth rate of 33.1% for revenue, 18.4% for EPS and 32.3% for its gross loan book. I believe these growth figures make it good value against the likes of other ASX growth shares, especially taking into consideration its price-to-earnings (P/E) ratio of just 16.

More reading

• New to investing? More ASX growth shares to buy now
• Share price opportunities to buy this week
• 4 exciting small cap ASX tech shares to watch
• 3 small cap ASX shares I’d buy with $1,000
• Why Brainchip and these ASX shares just surged to new highs

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO. The Motley Fool Australia has recommended BIGTINCAN FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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It was another night to forget for the Nasdaq on Tuesday.

U.S. investors returned from the Labor Day holiday and continued to take profit on the famous tech-focused index.

This led to the Nasdaq starting the shortened week with a disappointing 4.1% decline, which means it is now down 10% in the space of the week.

Someone that isn’t panicking is outspoken Barstool Sports founder and captain of stock-market ‘retail bros’, Dave Portnoy.

According to MarketWatch, Mr Portnoy has become the face of the fervour for speculative investing following the COVID-19 pandemic. He is part of a new breed of investors known as retail bros, which believe that stocks only move upwards.

Well that certainly wasn’t the case overnight, with Mr Portnoy acknowledging that he had been hit hard by falling stocks. Though, he doesn’t appear fazed by the pullback.

Commenting on the decline overnight on Twitter, Mr Portnoy said: “Down $700k and cool as the other side of the pillow.”

“It’s ugly out there but this is when the suits want you to panic. I won’t,” he added.

Should you be panicking?

While I would urge you to resist the temptation to trade stocks like Portnoy and instead focus on the long term, I would agree that you shouldn’t panic right now.

Given the strong gains that the Nasdaq index has made this year, it was inevitable that profit taking was going to happen sooner or later.

While this is disappointing, due to the quality of the companies on the index and their positive long term outlooks, I’m confident that it will rebound again in due course and eventually start printing new highs again.

In light of this, I think buying the BetaShares Nasdaq 100 ETF (ASX: NDQ) with a long term view could prove to be a smart move after this recent pullback. Though, you might want to wait for the dust to settle on this selloff before jumping in.

More reading

• 2 ASX shares I would buy for both growth and income today
• Here’s why I think ASX investors should buy these international ETFs
• Afterpay and Brainchip were among the most traded shares on the ASX last week
• New to investing? ASX growth shares to buy now
• I love volatile ASX share market days like today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Xero Limited (ASX: XRO) share price has been surging in 2020. However, the recent tech rout has seen shares in the accounting software group fall lower.

So, is now a good time to buy into the ASX tech share for a cheap price?

What does Xero do?

Xero is a New Zealand based tech company that provides an accounting software platform for small and medium-sized businesses.

The company was founded in 2006 and now boasts a market capitalisation of $13.6 billion on the ASX. It is also part of the ‘WAAAX’ group of top ASX tech shares.

How has the Xero share price performed?

Shares in the Kiwi tech group are up 19.7% this year compared to a 10.2% decline in the S&P/ASX 200 Index (ASX: XJO).

The Xero share price has been rocketing higher in recent years and even peaked above $100 per share. In the last 5 years, shares in the tech group have climbed 651.0% higher to cement Xero as a top growth share.

That came on the back of strong customer acquisition and retention. In fact, Xero continues to grow quickly as it looks to expand both organically and inorganically.

The company recently announced the acquisition of small business lender, Waddle, for $80 million to accelerate its growth.

Xero is also eyeing off further international growth in key offshore markets.

Why is the Xero share price under pressure

Investors are a little jumpy at the moment to say the least. Massive government stimulus and expansionary monetary policy have helped boost share prices higher.

That’s despite the coronavirus pandemic which is weighing on the global and domestic economies. However, market volatility returned late last week as United States tech stocks were hammered on Friday.

That was reflected in the Aussie market as well with the Xero share price falling 7.3% lower since Thursday’s open.

One of the issues facing investors is that these lofty valuations, including Xero’s 4,437.5 price-to-earnings (P/E) ratio, are based on future growth.

That’s hard to value at the moment but no investor wants to bail and miss out on potential gains.

Is now a good time to buy?

The Xero share price is not a great bargain on a relative value basis. When times are tough, I think ASX dividend shares can provide some comfort.

It’s a tough market out there right now and I think the long-term growth story is still good for Xero. If I’m buying and holding for decades ahead, then I think it’s never a bad time to buy a portfolio company.

More reading

• 3 high quality ASX shares for smart investors to buy today
• 3 ASX high-growth ETFs growth investors can’t ignore
• A practical guide on how to invest in ASX shares
• 5 ASX shares I will never sell
• New to investing? More ASX growth shares to buy now

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Wall Street was a sea of red overnight with heavy declines being seen across the board. One stock that stood out with a particularly significant decline was market darling Tesla Motors.

The Tesla share price dropped a massive 21% to finish the session at US$330.21. This was its largest single-day loss in its history.

Though, it is worth noting that the electric vehicle manufacturer’s shares are still up an incredible 284% since the start of the year.

Why did the Tesla share price crash lower?

U.S. investors were taking profit in the tech sector again on Tuesday, leading to the Nasdaq index falling a sizeable 4.1%. Given how high the Tesla share price has climbed in 2020, it isn’t at all surprising to see its shares fall more than most.

But it wasn’t just that weighing on the Tesla share price.

Investors had been expecting the company to be included in the illustrious S&P 500 index at the next rebalance. However, to the surprise of many, Tesla was snubbed by S&P in favour of online retailer Etsy, automatic test equipment company Teradyne, and medical technology firm Catalent.

Ben Kallo from Baird told Bloomberg that the decision to not add Tesla to the index was a “relatively surprising development.”

With an estimated US$4.5 trillion of assets indexed to the S&P 500, he felt that its “shares were reflecting expectations for substantial passive inflows.”

“We think the stock could be under pressure following the delay of S&P 500 inclusion, particularly from investors who bought ahead of the announcement expecting an opportunity to sell to passive funds,” he added.

Michael Dean, an analyst with Bloomberg Intelligence, suggested that Tesla’s failure to make it into the S&P 500 may be due to “question marks about the sustainability of regulatory emission credit sales which are currently underpinning earnings.”

Finally, also potentially adding to the selling pressure was news that General Motors is investing US$2 billion into rival electric vehicle company Nikola Corp. The car giant intends to partner with Nikola Corp to engineer and manufacture the latter’s Badger pickup.

More reading

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• Why Tesla shares skyrocketed in August
• 4 things learned from Apple and Tesla stock splits
• ASX 200 Weekly Wrap: Friday crash pulls ASX back below 6,000 points
• After the crash, is it time to buy this Nasdaq ETF?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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