I’ve wondered for some time whether UK shares could be underestimating the prospects of their underlying businesses.
The markets seem to be pricing in Armageddon. But there isn’t that kind of disaster going on inside many enterprises. And they’ve started surprising the market with upbeat trading statements.
When that happens, we often see stocks shoot up to adjust valuations. And those moves higher will likely better reflect the positive reality on the ground.
Moving higher
One good example of the positive-news effect occurred in my own portfolio this morning. Quixant released a positive trading update and the share price is around 7% higher today, as I write.
The company provides engineered technology products mainly for the global gaming and broadcast industries. And it said today the business has “continued to perform strongly” since the half-year results on 6 September.
The directors now believe full-year results will come in “ahead of market expectations”. And chief executive Jon Jayal said the recent good operational performance has been driven by “ongoing buoyant customer demand, continued recovery in gross margins and ongoing management of supply risk.”
Resilient demand
But Quixant isn’t the only business trading well. Shares in Zotefoams shot up by almost 25% up on the release of today’s upbeat trading statement.
The company describes itself as a world leader in cellular materials technology. And it reported “continued momentum through Q3 and full-year expectations increased”.
So far, revenue is running around 24% higher year on year. And the company reckons it is seeing “continued resilient demand across most of its end market segments.”
Looking ahead, the directors said demand entering the final quarter “remains encouraging” and the company has good visibility of confirmed orders for the remainder of 2022.
Revenue up, earnings down, shares higher
Meanwhile, Treatt (LSE: TET) also put out a promising update this morning covering its trading year to 30 September. And the share price is almost 8% higher.
The company manufactures and supplies natural extracts and ingredients for the beverage, flavour and fragrance industries. And the update reports revenue growth for the year of 9% at constant currency rates, “in line with market expectations”.
However, the company issued a profit warning in August. And chief executive Daemmon Reeve said today the business was “impacted by some specific factors in the second half which ultimately led to a disappointing outcome for the full year.”
Nevertheless, the company produced positive growth in sales for the year, Reeve said, “reflecting a good performance across the vast majority of our categories.”
These three businesses are far from being on their knees. And there are many others like them for me to find right now. I think more UK shares are likely to surprise the market in the coming days and weeks. However, it’s still possible for businesses to run into difficulties. Positive investment outcomes are never certain with stocks and shares.
Nevertheless, I think it’s a good time for me to look for UK shares to buy for the long term. And my expectation is that more companies will release upbeat trading statements in the coming days and weeks.