When the time is right
How long is too long?
A question that has been asked numerous times at different stages is how long do we give a long-term investment before we axe it?
The answer is not a straightforward one and entails numerous factors but to try and simplify it, we give it two quarters or until the story changes.
Two-quarters of poor earnings will bring the stock to the attention of the axe for either a trim or to trash.
The story requires more understanding of what management is doing, what product/services are being added/removed and what changes are being implemented, be it good or bad.
If we take PYPL earnings on Feb 2 2022 as an example, this is one of the worst I have heard in recent years.
I am not referring to the numbers - I am referring to the excuses.
'Exogenous factors also did impact our results. Supply chain issues disproportionately impacted our cross-border volumes and our small business merchants.
Inflationary pressures impacted spending within certain segments of our user base.
Rising threats from COVID variants cut travel and event bookings and the elimination of government stimulus had an impact as well.
E-commerce growth rates during the holiday season were lower than industry expectations despite a strong 2-year growth rate of almost 50%.'
The above is an example from management on how to take no responsibility and blame anyone and everything else.
It is as if all the points (excuses) mentioned above relate to PYPL only - and all other companies reporting good earnings were immune to these challenges.
Earnings YoY percentages have dropped from double digits since June 2021 and add that to the feeble management excuses and all this after the PINS disaster, this is a prime example (for us) of a stock that needs to be axed.
Of course, one size does not fit all and every story is different so the reasons to axe this stock will be different to the axing of another stock.
I hope the above gives you a baseline on how we consider when and why to axe a trade.
I am sure this stock in time will turn around and also move up.
We have little faith in management after so many hiccups that, for us at this time, we would rather not have it in our portfolio.
Let's go trade!
