11/16/2022 |
Cestrian Capital Research Presents: In Volume By Price We Trust
In Volume By Price We Trust
In investing and trading, you can work very very very hard and try to be the smartest investor or trader in the room. You can hold your own independent view on things, load up, and wait for the market to come ’round to your way of thinking. Payday if it does, debtor’s gaol if it doesn’t. Like that.
Or if like us, you lack the time to polish your skills to the required genius level, you can just follow the breadcrumbs laid by Big Money wheresoever it goes. Big Money does a good job of making money – that’s why they’re Big Money. (It helps that they can move enough money to almost guarantee a good outcome of course).
Here’s an example. We can give you a chapter and verse on why Unity Software is a not-great business. And we would be convincing. You may well believe us. We would say something like;
“Unity Software $U reported last week. Revenue growth was good, everything else was bad. Which means the revenue growth isn’t all that impressive, just that they were in essence buying revenue by burning a ton of money to get it. The company had $1.8bn of net cash in September 2020; $20m net debt today.
Operationally we’ve said for some time that this company leaves a lot to be desired. This starts and stops with the management team in our opinion. There is no way you can’t run a software company that has $1.4bn in TTM revenue at breakeven or better if you try, particularly given that growth is only 24% on a TTM basis – we’re not talking move fast and break things here”.
And we would post these numbers to evidence our conviction.
And we would conclude, pshaw, move along, nothing to see here. Which would be absolutely correct on the basis of logic and what “should” be. It would, however, be incorrect as far as making money is concerned. Want to make money by following Big Money? Learn to spot what accumulation looks like on a stock chart. (Clue – it looks a lot like distribution – ‘cept the former tends to be at the lows and the latter at the highs).
Unity, you see, looks to be under institutional accumulation.
You have to ask why that would be. Well, the house view here is that we believe the Metaverse is going to be a thing – it won’t be called the Metaverse, it will just be a more immersive version of today’s Internet – and right now when it looks like a busted flush is probably a good time to be buying up positions in stocks such as $META, $U, $MTTR, $NVDA, and so forth. $U is, in short, one of very few pureplay Metaverse stocks.
We believe institutions are ahead of the game and are building positions in these names down here at these low levels. Here for instance is the chart. (You can open a full-page version, here).
That Volume By Price indicator on the right-hand side shows major, major buying down here at the lows. That’s not Chad and the bros in the basement. That’s real volume. And it’s recent volume – the clock (the vertical dotted line you see there) starts at the peak of the price cycle, so these volumes are undistorted by earlier purchases on these levels.
And that is good enough for us. Simple but very often effective. We rate $U at Accumulate. We still think the fundamentals are poor. But it doesn’t matter what we think. It matters what Big Money is doing, and whether we can spot it and then tag along for the ride.
Cestrian Capital Research, Inc – 16 November 2022.
Disclosure: Cestrian Capital Research, Inc staff personal accounts hold long positions in $U
DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
