Here at Motley Fool Dividend Investor, we’re unashamedly long-term investors, and ones specially focused in income returns. As such, we don’t lightly sell out of our investments. We certainly don’t try to trade our way to success; it is time in the market, not timing the market, that counts. But when the price of a holding gets, well, unreasonable, it is often sensible to divest and redeploy our capital elsewhere.
So it is with G8 Education (ASX:GEM). This was a recommendation that always had some hair on it; debt was high, share dilution a significant factor and the funding of dividends was largely possible only through an underwritten reinvestment plan. Nevertheless, when we recommended shares at $3.05, back in July 2015, the value proposition was compelling. With such a low price, we were well compensated for those risks, and didn’t require much growth to underpin a solid total return.
Since then, we’ve received a good stream of income (paid, atypically, quarterly) and a very tidy capital gain. But at the current price, the risk/reward trade-off is no longer attractive.
Of course, the market being what it is, there’s every chance shares could continue to shoot higher from here. Then again, our calculus is never based on predicting market prices, but rather contrasting current prices to our estimate of intrinsic value. And, on that score, we think now is a good time to sell and find a better home for our money.
We’ll happily dive back in if Mr Market again presents us with a more compelling proposition but, for now, G8 Education is a Sell.
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