Joules Group PLC (LON: JOUL) is an excellent example of how expectations matter to a share price. It isn’t actual results that matter so much, it’s the gap between what investors think they’re going to be and what they are that does.
We can see this in the recent movements in the Joules share price. In December the Joules trading update informed the market that while results were objectively just fine they were well below expectations. The share price dropped 50 pence or 25%. Then at the beginning of February, they said again that while results were OK, they were worse again than previously thought. The Joules share price dropped another 60p, that being a 50% drop from that starting point. Now we’ve the actual results and they’re entirely in line with that trading update from earlier this month. The shares don’t seem to be moving much in either direction as a result.
That’s one lesson for us to take from Joules Group. It’s the gap between beliefs and reality which drive share prices, not that reality itself.
There is of course a more specific interest in Joules, over and above this general lesson – what’s going to happen to the share price next? It’s possible to be very cynical and note the first written line of their half-year results: “Joules' brand awareness1 increased 2.0%pts”. If the opening good news is the result of a YouGov survey then perhaps there are deep, deep, problems here. But that is to be possibly excessively cynical.
For the actual trading results were not that bad. Revenue is up 35% but of course, that’s against covid afflicted numbers. It’s still up 15% on pre-covid numbers though. Gross margin is down a bit from pre-covid at 50% or so instead of 54%. There’s little in these numbers that would produce shrieks of horror if it weren’t for the failure to meet previous expectations. It’s also fair to point out that many people have had shipping and logistics problems given recent events.
So, our view of Joules Group as a trading opportunity really depends upon our view of this immediate future. The share price is well down, perhaps it’s time to try catching that falling knife? Given the lack of price movement as a result of this confirmation of the trading statement we’re unlikely to see a dead cat bounce, but what of the medium term?
A reasonable view would be that we’re past the technical issues of expectations and trading news. The future of Joules Group now depends upon the success of that brand – it is possible to be too cynical about YouGov surveys – and that’s something that would need to be directly observed. This isn’t something that can be calculated from released numbers, it’s something that depends upon customers actually frequenting the shops. Real-world information is required to decide whether the company is on the turn that is.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.