Here’s why Scottish Mortgage shares could be too cheap to miss

Scottish Mortgage Investment Trust Shares (LSE: SMT) have fallen more than 20% in the past 12 months. But they are still up 40% in five years.

I rate Scottish Mortgage a buy, and now the stock looks lower. But I don’t know how long it will last.

Less than three years

The shares have looked like they are ticking up. But the Silicon Valley Bank collapse has sent people tumbling again. We are now looking at the lowest prices in three years.

Why is it so important? Well, it’s Silicon Valley. It is the center of US technology. And Scottish Mortgage invests heavily in US tech stocks.

Evaluation

I want to talk about the valuation of investment trusts. And why I think the value of Scottish Mortgage, in particular, is so low that I wonder if the days of deals can last.

I have been buying investment trusts for years. And one of the important things that I want to talk about is the premium, or the discount. What is that, you may ask?

Yes, investment trusts invest in various assets for their shareholders. In this case, it’s a high-tech growth stock. So when I buy shares in a trust, I’m actually buying some of those underlying investments.

Assets

There is something called net asset value (NAV). That tells me the value of the underlying assets that I own indirectly through Scottish Mortgage shares. If the stock is higher than that value, then we say it is trading at a premium.

But if the stock is lower than the asset value, then we say it is at a discount. Scottish Mortgage shares are trading at a discount. And now, it’s big.

In the latest panic, Scottish Mortgage is valued at 17% less than the shares it holds. That’s like being able to buy pound coins for 83p each.

real risk

It is important that we do not ignore the real risks here. U.S. tech stocks have been in decline for a long time. And some of them were, in my view, horribly overpriced to begin with.

Teslafor example, it has a price-to-earnings ratio (P/E) of around 50. But a few years ago it was over 650.

They have happened to some others held by Scottish Mortgage. They fell, but now they are not cheap. The main risk I see is that the correction in tech stocks isn’t over yet, and there could be more pain.

Back!

But I love this latest panic. It scares people, they sell shares, and that makes them cheaper for me. Fear is definitely overdone, and I didn’t see the bank crash coming (I didn’t see the last one coming either, but let’s gloss over it).

Will there be another tech stock crisis? I don’t think so. Not when we’re talking about global giants like that Modern, ASML, Illumina, NVIDIA… all Scottish Mortgage holdings.

And when the market realizes the sky is not falling, they can just start buying it again. A Scottish Mortgage top-up is high on the wanted list.