As I was hinting in my previous post, I was looking for a decent exit level in Xtep holdings, today was the day. The company is still cheap and I think it is operating in a segment (running shoes geared towards Chinese) with clear tailwinds. Why I’m selling is for more subtle reasons. I think I will personally really struggle to fully understand this company, its customer base and the products they are selling. I have no idea if the customers like their products or how much they like and trust the brand. I tried to discuss the brand with people living in Shanghai, but nobody used the brand or barely had heard about it. They were all buying Adidas, Nike or perhaps Anta shoes. All the Xtep stores were also located far away from central areas. This is when I understood that this brand is just selling to a much poorer category of Chinese then I come in contact with. Since I have no contact with this customer base I deem it very hard for me to build any feel for the company beyond the numbers. I could possibly still keep this kind of company long term in my portfolio, for the general tailwinds of this segment and a belief in superior management. I think the deciding factor has been that I have not seen any signs of this superior management, rather this is one of the reasons why the stock is still selling so cheap.
I bought 14300 shares Feb 1st 2017 at 3.28 HKD, after a bumpy ride I thought the stock had lagged its competitors significantly and added Aug 22nd another 7150 shares at 3.16 HKD just before the semi-annual was released. The report was a disappointing and the stock traded down to a low of 2.6 HKD in the coming months. But this time I did not do the same mistake as with Zhengtong Auto (were I stop-lossed at the bottom). This time I held on and the turn-around thankfully came. Including dividends I made a return of about 36% on this holding as I sold the full holding today. As a reference my overall portfolio returned about 25% since the initial investment in February. With my increased cash position I will for the coming months rather consider what of my current holdings I will add to, rather than trying to find new investment cases. My portfolio is diversified enough already and it feels good for the first time to not have any stress of adding new and/or better holdings to the portfolio.
The last few weeks my portfolio performance has been very strong, in part thanks to Xtep, but also other HK listed holdings like Nagacorp and Fu Shou Yuan has performed very well. Last Friday the portfolio was just half a percent shy of all time highs, which feels as a pretty solid result considering the stock market correction we just saw.
The Huhtamäki analysis is now overdue due to high workload and a few other things that popped up, my apologies but it will take another few weeks before it is done.