Pinned straw:
As a company moves from micro-cap to small-cap and beyond, a lot of things change but i increasingly think liquidity is a big one. When both price and volume pick up, sustainably, the amount of money changing hands each day really explodes. That’s exactly what we’ve seen with Catapult over the past year.
Using the 60 moving average, daily value traded has gone from $1.7 to $9m in 10 months.
As liquidity grows, the stock becomes easier to buy and sell, which brings in more and bigger investors. Which pushes the market multiple up (in general)
It took me a while to get why bigger companies usually have higher multiples -- i mean, just by virtue of their size you tend to think growth would be more limited. But it’s just that big money values being able to move big chunks without messing with the price. Even us small fry benefit from a liquid and deep market.
For the company, that bigger multiple ultimately means a lower cost of capital. And if they know how to use it, can really help turn a small edge into a solid moat.
All of which is to say, to myself as much as anyone, that across all of the risk/reward spectrum on the ASX, the best options (i reckon) are companies that have a decent shot at graduating from promising, cash-burning hopeful to a viable, credible business with genuinely good prospects. Because as that happens the share price not only gets boosted by the underlying fundamentals, but the liquidity kicker as well. Which can translate into a funding edge. which can help growth, which is a boost to the fundamentals and so on and so forth..
Anyway, have a happy weekend all!
@Arizona , GS's comments align to what Ian Cassel describes typically occurs in steps 5-7 of his Turnarounds framework, a framerwork that has really, really served me well. The hardest part is steps 1 to 4, especially when the rest of the crowd thinks you have completely lost the plot.
But the benefits of the momentum totally kicks in once step 5 is reached, which @Strawman's chart clearly shows.
I think CAT is now at step 7, with a long and "relatively clear" runway ahead.
Somewhat to your point@Strawman On the latest Intelligent investor podcast Gaurav Sodhi brings up Catapult as one of a handful of companies held by most fund managers and recognises that this momentum begets momentum.
GS: That's what's curious. I would say over the last - since 2021, maybe 2022 in particular, you've been rewarded for momentum, momentum is the factor that's actually generate the best return. And historically, I would say over the past century, you've really needed a more contrarian approach. The best returns have come from taking contrarian positions to the market and then something unexpected happens and then your returns kind of jump. For the last few years, that has not been working and as that's not been working, more and more people have been jumping on this momentum train and that obviously increases the momentum.
Yeah, there's a kind of an accelerant factor.
GS: Yes, that's right - and Nick's point is right, it's very interesting to go through fund manager quarterlies and see that most fund managers, whatever they purport their strategy to be, they may be quality investors or growth investors or value investors, they're all holding the same stuff, the same five stocks - we can probably name them if we want, Nick?
Go on then.
GS: Well, they're all holding GDG - what's that stock called, development something...?
NC: Generational Development.
GS: Generational Development, Catapult, Technology One, Xero, not so much Pro Medicus but Pro Medicus is a bit of a special case I would say, probably put that to one side, and maybe WiseTech, Nick?