Difference from broader market

One of the things that value investors look out for the most is deals. Just because the GDP is only growing at 3%, imports are down 20%, corporate spending is down, consumers are spending less money....etc. There are many companies that slip through the cracks on these economic, corporate themes.

Main street and wall street are two different things. Lets say as an example you have found a new store around you that offers organic food at a lower price and better quality than other stores around you.

Lets give that company a name "Soil". Lets say Soil has been expanding and now has 500 stores. It remains profitable and has shown revenue growth that correlates in a positive way with its growth picture. It is expanding at an efficient rate.

The stock market is reacting negatively to a series of rate hikes and also thinks there will be some tensions with China. The NASDAQ has gone down -12% ytd, and it was down -3% the year before, some people are sketpical. Soil is down -20% on the year, because it has been trading in sympathy with the market, and it has also gone down because some of the other grocery store stocks have not been as profitable as in the year before.

Soil has been providing acceptable profit margins, and it is growing at an above average rate. Nothing in Soil's business model or operations are affected by the scenarios that were played out above.

If you are looking at wall street as a whole and glanced at Soil's stock price you would think the company messed up on something, thats not the case, it was the cause of systemic factors that led to the decrease.

To contrast this, lets give a company like Apple. For them, you could say that they will be affected by Tariffs and demand in China because of the tensions between the US and China. In addition if GDP is going down, that could imply that Americans have less money to spend. The price of Apple is down -5% because it is considered to be a safe stock regardless of the factors that are affecting its top and bottom line.

Soil on the other hand has given positive signals and is not affected by the current enviroment.

If Soil can keep their growth up in lets say 3 years and also increasing their profit year by year they will be improving their valuation shall the stock be the same price. Thus you would be getting a better deal. If Apple on the other hand grows at a slower rate than it was before and is less profitable because they are recovering from the issues, and the stock is the same then the valuation is justifiably worse.

At some point the whether that is a bull market inflows, analyst coverage, large institutions buying shares, soemthing should take the price of the stock up. The market is efficient at the end of the day, it just may have to weather a few storms. Investors in small caps have to be patient because there is less volume with the stocks compared to examples such as Apple, so inflows and outflows at set $ amounts can have a much bigger impact on them.

A stock that has that low of a market cap, might be unable to hold its strength in tough times unless it is able to attract some investors, analyst coverage or positive media.

So basically what I was trying to lay out there was that there is nothing wrong with the company itself from the date in time where it was, when it was 20% higher. The issues that affect the big companies have a trickle down impact on the other equities because they are the same asset class.

This is an inefficiency and can be a positive sign for people who think it is a good company to own long term.