A strong last quarter has set shares in the cyber security company Sophos (SOPH) surging on Thursday. In mid-morning trade the stock has jumped 16% to 483.6p, valuing the business at a little more than £2.24bn.
Already this year Sophos shareholders may feel queasy from the roller-coaster ride of the stock. Today’s jump is just the latest in a bumpy run since closing 2017 out at 570p, taking it record highs of 669.5p, followed by two steep plunges.
STRANGELY ERRATIC MARKETS
This is rare volatility for such a large company and FTSE 250 member. It also provides a strong argument, for the moment at least, against stop-losses.
They act as a sort of insurance policy against unanticipated poor share price performance, details of which you can read here.
When a company of Sophos’ scale can see its share price lurch by 15% to 20% on what appears to be fairly marginal swings in otherwise impressive growth, investors need to watch out.
BILLINGS GROWTH BOUNCES BACK, A BIT
A recovery in billings growth has lifted the mood today. The company noted that full year reported billings growth of 23%, a fraction higher than the 20% to 22% guidance range for the year to March 2018.
Billings is the entire value of typically multi-year contracted work.
That’s presumably seen as a big improvement on the company’s third quarter showing in February, when Sophos reported a 19% increase in billings, marginally off the guidance pace.
That 8 February update sparked a massive sell-off in the stock, which slumped 17.5% on the day. Today the stock jumps by a similar amount.
PRICED FOR PERFECTION
This sums up the odd mood of markets at present where investors are demanding superior results, or else.
‘Simply meeting expectations may not be enough, and even a slight miss results in severe punishment by the market,’ says AJ Bell’s investment director Russ Mould.
It also illustrates the risks of highly rated shares priced for perfection, even largely high quality companies like Sophos.
Full year results for the 12 months to 31 March 2018 will be announced on 17 May.
