Many times in life, we can learn a lot from looking at history. It is not different when it comes to stocks. Seasonal patterns are rather common, though oftentimes neglected. This is true for the stock market as a whole, but also for different sectors or sometimes even single stocks.
Our top-pick G5 Entertainment is such a stock that has shown a clear historical pattern in the past. As you can see in the graph below, G5 Entertainment has always started to trade significantly higher in January of each year (it doubled both at the beginning of 2011 and at the beginning of 2012). Why is that so? G5 Entertainment always issues a preliminary quarterly result statement a few days after the actual end of each quarter (i.e. around January 3rd). So at the beginning of each year, investors get to hear that G5 has actually achieved its targeted revenue and earnings levels and the market starts to focus on the coming year. Furthermore, the holidays are THE most important part of the year for app sales in general. People unwrap their new smartphones and tablets and start to fill them with content. This goes usually along with very positive newsflow around the app industry in total and G5 Entertainment in particular.
It is usually uncommon that the market is so short-sighted and only looking at the current year’s earnings potential for a company but in small-cap names that are listed on smaller exchanges, like G5 is, investors are usually less sophisticated and have in the past acted under the theme “seeing is believing”. We could spend hours now and here to argue why this is wrong etc etc but rather than doing that we think it is more important to just accept the fact that it is like that. And the good news is: we are approaching that time of the year again. You can decide for yourself if you want to follow the crowd and jump on the train when it has left the station in early January or if you want to be one step ahead. If you choose the latter than the coming days and weeks are the perfect entry point into this fast growing, profitable, debt free stock that is trading at a ridiculously low 12m-forward PER of around 8x.