To the mooonnnn! Buy, Buy and Buy. It can only go up. Find out what happened to the gloves stock mania these days in the Malaysian market!
Ever wonder what happened to the interest in gloves stocks in Malaysia? You would have surely seen their meteoric rise last year when even your uncles and aunties are talking about them. That’s when you know it became the wild wild west in the markets. However, that mania seems to have died down going into 2021, where most investors have moved to different sectors after that. So what exactly happened to gloves stocks since then?
The rocket was shooting through the sky for gloves stocks before being grounded by vaccines.
The rocket for gloves stock sped through the atmosphere in the pandemic period of 2020, rising through the roof for the companies of Careplus, Hartalega, Kossan, Supermax and Top Glove. Careplus had the biggest increase from Jan 2020 to its peak in Aug 2020, rising by 1746% from being an obscure glove company to one of the best performers in share price during this period. This was followed by Supermax (1326%), Top Glove (426%), Kossan (275%), and finally Hartalega (214%).
With the announcement of the vaccination program for Malaysia towards the end of 2020 and the easing of lockdowns, gloves stock prices declined from its peak but was still considered the best sector to invest in. Naturally, glove companies that had the highest increase also experienced the highest decline in share price from its peak. Careplus declined by 40%, while the other companies declined by about 25% to 30%.
However, the rocket has officially lost all its thrusting power when the government formally implemented its vaccination programs in early 2021. Share prices of glove companies further deteriorated even when the pandemic worsened and lockdowns were imposed. At this rate, it seems that investors are leaving the sector on masse following a fundamental shift in investor knowledge about the situation. The higher rates of vaccination just mean that there is less of a need for protective equipment as hospitals around the world do not treat as many Covid-19 patients as before.
At the end of the day in Oct 2021, some glove companies did indeed gain a lot in terms of share price increase. Careplus still dominates in terms of performance with a full 449% increase since before the pandemic. This was followed by Supermax at 227%, and Top Glove (61%). However, it does seem like Hartalega and Kossan are back at their pre-pandemic levels which is concerning for the industry. By right, they should at least have some gain in share price but this indicate that the industry does have some problems in overvaluation.
Glove stock companies are severely undervalued now, trading at a very low price-earnings ratio but indicate investor psychology.
To put it simply, glove stock companies are trading at ridiculously low valuations which presents a good opportunity to enter. They are currently trading below 5 times price-earnings ratio with Supermax (1.6 times) and Kossan (1.8 times) being the lowest. Companies typically trade around 12 times to 15 times in normal times which indicates that glove stocks are severely undervalued right now or investors think that their profits are gonna decline by a lot in the future. However, this needs to be balanced by the fact that during the height of the mania, most of these companies were trading at ridiculous price-earnings ratios of 60 to 100 times. Hence, this means that the higher you go, the harder you fall and investors at that time were irrational in pushing them up so high. The fall is going to be much more brutal when investors realised it.
Do they deserve such a low valuation though? Maybe, but investors are again missing a fundamental point about gloves.
Say what you want about the performance of gloves stock over the pandemic but something fundamental has changed in the industry. To be trading at such low valuations mean that investors are missing some fundamental trends in the industry and are just investing in what’s hot currently. I mean this has always been how the market operates but I do think there is some hidden value here especially for Kossan and Supermax.
Looking at the revenue and profits that glove companies have generated throughout the pandemic and now, I don’t think they will be making as much money in the future compared to now but certainly they will make higher profits than they did before the pandemic. Countries around the world have learned their lessons when it comes to preparing for pandemic. The lack of PPE equipment has made it awfully clear that everyone’s (except for Hong Kong) mitigation plan for a pandemic is severely underwhelming. The need to stock up on all these equipment for future pandemics has fundamentally changed the trend in the gloves industry.
After all, profits for all these companies have grown by 4.5 times to 7.0 times in just a year. I expect that they will not make as much profit moving forward, but it will certainly be much more than pre-pandemic levels. The current share prices do not reflect this fundamental change in the industry and thus, I see some value in investing in gloves now. I think profits for these companies will come down by 25% to 30% and that is why I think they are currently undervalued based on their share price performance.
