When you play with fire, you’re going to get burned. So it proved with last year’s Contrarian Value screen which alighted on Ted Baker (TED) as one of its top five picks. The fashion retailer’s shares cratered when it revealed stock values had historically been massively overstated.
The red-flag presented by the group’s “astronomical” stock-to-sales ratio was not hard to spot and hopefully my write-up was clear enough with its warnings. However, screens themselves don’t go in for very deep analysis; if they try to they often stop producing any positive results. That meant the top five picks from last year’s Contrarian Value screen took a massive negative 87 per cent hit from Ted.
A strong performance from Pets At Home (PETS) did something to bail out the top five picks, but it was still ghastly 12 months with the five shares producing an 18 per cent negative total return overall compared with negative 12 per cent from the FTSE All-Share. And while the top 20 did better with a negative 1.7 per cent return, I have long-held reservations about the validity of the enlarged version of this screen (we’ll come back to that later).