Graco Part 4

Graco reported FY17 Q1 result yesterday, and its share price is up 8% today. YTD, it’s up 30%! I sold it in early January at 85.65 (see this post) and I look stupid now, missing 25% rally in 3.5 months.

Graco - Share price - 2017-04-27.PNG

Source: Google Finance


Going back to my earlier post, I sold it because I thought it’s slightly overvalued. Why did the price rally by 25% since then?

First, US market continues its bull run. YTD, S&P 500 is up 6.7%. When the general market sentiment is bullish, most companies’ valuation will get carried along. Many people whom I speak to think that US market is overpriced. But, it continues to get even more overpriced as we speak.

Second, Graco beats market expectation. For Q1 of FY17, sales increased by 12% yoy and net earnings rose by 54% yoy. After Q1 outperformance, the Management raised the full year 2017 outlook to mid-single digit organic sales growth from the prior outlook of low-single digit growth.

Mistake to time buy/sell

It’s my mistake to sell out a good company when it’s slightly overpriced and intend to buy back at dip. That strategy is actually trying to time the buy and sale, and I’m terrible at timing the market. A costly mistake.

A good company like Graco can surprise you with its outperformance like how it’s been doing over the years. It’s true that it has experienced substantial price drop in several bad quarterly earnings release, but over the long run, it’s solid outperformer. Therefore, a better strategy is to ride along it as long as its competitive advantage remains solid.

I will make such mistake again in the future for sure, but I hope with each lesson learned, I can reduce the frequency.


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