@Matt48,
An answer about when I would sell ISD requires a bit of context:
I tend to invest in 2 quite different ways:
1.) I buy, and hold for the long-term, companies that increase their intrinsic values over time. In these cases I don't worry too much about trying to buy these stocks a discounts to what I think their intrinsic value is, and I also don't pay much attention to what the share price is doing at any give point in time. Typically, these are "growth-type" stocks (in my portfolio, these are companies such as ARB, AUB, ASX, BRG, CSL, DLX, MQG, NCK, NHF, REH, RHC, RWC, SDI, TCL, WES, WFD). By definition, this category features the market's higher-quality. Around 80% to 85% of my capital is invested this way, depending on where we are in the equity market cycle.
2.) As distinct to this, I also invest some of my capital on a deep value basis. In this category, I try to buy companies - which might not necessarily be of any decent quality - at deep discounts to their intrinsic value, i.e., "deep value" or "turnaround" situations. Invariably, these sorts of stocks tend to be lower in quality and financial pedigree and the intrinsic value of their businesses tends to not increase organically with time. They are often businesses that operate in cyclical industries. As such, I tend to not be a long-term shareholder (not being long-term means that I might own them for "only" one or two years, as opposed to many years, decades, even. (Examples of these sorts of stocks that I currently own are AZJ, CBA, CTX, CYB, DTL, IFL,
ISD, KOV, LYL, MND, ORG, WOR, ZNT... although while all of these were at some stage deeply undervalued, very few of them remain so today.) Because the market can sometimes take a very long time to re-rate undervalued businesses (especially ones that are of poor quality) and because turning businesses around successfully is not easy, around I don't like to expose much more than 20% of my capital to this kind of investment.
So, in my mind, ISD is not a long-term holding (well, not at this stage, anyway... it might become one if it starts to deliver a certain level of financial performance, but I'm not sure how likely that will be).
To your question, then, about what will cause me to sell, there are two possible things that will make me do so:
1. The business fails the milestones I have set for it in my investment process.
2. The share price hits a point of full valuation
In terms of
Point 1., the first milestone is that EBITDA for each of the current half, as well as for DH2017 (seasonally a weaker half, for ISD) needs to be at least $25m.
The second milestone is that the company doesn't make another acquisition valued at more than $5m.
In terms of
Point 2., my fair value assessment for ISD is around $2.30 per share.
That's around 70% higher than my initial purchase price and it was that perceived potential return that prompted me to buy the stock when I did.
(I think that, for a stock that has disappointed the market as much as ISD has, there would need to be at least 50% upside to justify purchasing the stock.)
So, unless one of the above milestones are breached, I will only commence selling my ISD from that level.
While most of the return I initially envisaged has materialised (truth be told, it happened a darn sight faster than I had expected, but my experience is that one can never accurately predict the timing of these sorts of things), I still think the stock is fundamentally under-valued by some 30%.
But remember that this sort of exercise is never an exact science.
