With TTD now whittled down to just 0.4% of my portfolio and AEM sitting at 2.8%, AEM’s continued soaring will completely overpower any further drop from TTD.
Indeed, the price of AEM Holdings (AWX) continued to surge after I published my post at the end of February. The 40% unrealised gain more than doubled in less than a fortnight.
While I’m delighted with the gains, the jump was too fast and furious for my liking. Intuitively, I sold two tranches during this period — at S$2.90 and S$3.32 — without doing any deep due diligence at the point of sale.
To be clear, I don’t have a target price and I’m not afraid to sit on winners. I am just uncomfortable with how quickly the price moved.
In the 10 trading days since the results announcement, the stock is up over 60%. This surge happened even as escalating Middle East conflicts created a backdrop of significant market volatility.
With 30% of the holding now de-risked, it’s time to look past my gut feeling and see if the underlying fundamentals actually justify my caution.
Priced For Strong Execution
Management has guided for S$460 to S$510 million in revenue for FY 2026. Taking the midpoint of S$485 million, that translates to nearly 22% YoY growth.
While that doesn’t seem a lot for a “hot” tech stock, AEM’s operating leverage means its net profit and EPS could potentially double in the coming year as margins expand.
With that kind of growth, pricing AEM at a forward PE of around 30x doesn’t seem excessive.
Moreover, if the validation with their a tier-one memory customer stays on track for 2H 2026, the growth outlook for FY 2027 looks even brighter.
The Double-Edged Sword of Operating Leverage
Was I really too impulsive? I don’t think so.
While I hope AEM achieves the upper bound of its guidance, I must account for the risks inherent in hitting the lower bound, or even falling short of it entirely.
Operating leverage is a double-edged sword. With just slightly lower sales, the valuation picture shifts dramatically.
As seen from the analysis above, if revenue comes in just 6% below the bottom end of guidance at S$435 million, the Forward PE ratio balloons to 46x while EPS growth “slows” to 33%.
While 33% growth is objectively strong, does it justify such an aggressive valuation?
I’m not suggesting AEM will lose the business, but in the semiconductor world, delays happen for a dozen boring reasons: parts shortages, logistics bottlenecks, or customer push-outs.
A delay doesn’t change the long-term prospects, but the market at S$3.29 is currently pricing in the “Midpoint” or better. If they deliver a “Miss” scenario, you can bet the market will not be willing to pay a 46x multiple.
Reducing Downside While Capturing Upside
By taking 30% off the table, I am effectively hedging against a valuation correction without sacrificing the lion’s share of the potential gains.
To illustrate the mechanics of this move, let’s look at a hypothetical model where a stock is bought at S$2.00 and surges to S$3.00.
The Soft Landing
As the table illustrates, the “Sold 30%” strategy provides a much softer landing.
If we model this scenario, a snag that sends the price back to $2 would leave the “No Sell” investor back where they started —years of waiting for zero progress.
In contrast, the “Sold 30%” approach results in a 15% total gain for the position.
By locking in the $3 “premium” on a portion of the shares, you create a buffer that protects the total capital even if the remaining stake retreats to cost.
The “Psychology of the Floor”
Applying this logic to my actual AEM position, the profits locked in from this sale already represent a 25% gain relative to my total initial capital.
Since this investment is funded by my CPF-OA, that realised gain is equivalent to almost ten years of guaranteed interest (at 2.5%) secured in a matter of days.
Knowing that the downside “floor” is already a decade’s worth of CPF interest makes holding the remaining 70% stake psychologically effortless.
Conversely, if AEM rockets even higher, I haven’t “missed the boat.” Instead, I’ve simply accepted a small trade-off in upside to eliminate the risk of a total return to cost.
A Note on “Locking in Profits”
I want to be clear: I generally don’t believe in “locking in profits” just for the sake of it.
The popular idea of selling just enough to “cover the capital” so the remaining shares become “free” is a sure way to mess up your investment logic.
It’s a psychological trap which anchors your decisions to a past purchase price rather than future prospects.
I prefer to view my current stake (regardless of when I bought it) as active capital. My job is then simply to decide what to do with that capital today, relative to my other positions and total financial assets.
However, AEM is a case of a move that is simply too fast and too furious.
When a stock price outpaces the underlying fundamentals in a single fortnight, there is likely an element of speculative play from traders driving the action. This means the price can reverse just as fast as it climbed.
I’m not going against my principles; I’m being flexible.
If you are running a long-distance race, you don’t want to blow your lungs out trying to follow the pace of the sprinters.
Disclaimer
This content is for informational only. I am not a financial advisor, tax professional, or legal expert, and the information shared here does not constitute personalised financial advice, nor is it a solicitation to buy or sell any securities or financial instruments.
All opinions and commentary reflect my personal views and are based on general market commentary.
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