There is a lot of news coming out of Transilvania. The top physicist today, Laszlo Barabasi talks about Transilvania in his book ‘Linked’. Transilvania was cited as the Silicon valley of Europe by Financial Times. And Transilvania is also the first home for Tralio. So what is wrong with Transilvania? When Transilvania gets global attention for selling a startup for USD 400 million to Facebook, the local stock markets should continue to respond positively, especially local banks. But recently the homegrown bank, Bank of Transilvania (TLV) with a market cap above USD 1 billion, the darling of the stock market, the outperformer suddenly is not going anywhere. What happened?
The Jiseki relative ranking placed the stock as a top performer at a ranking above 90 in Oct 2012. The stock moved up more than 60% in 36 months to a peak price of 2.68 in Nov 2015. Winners and outperformers continue to lead and show positivity in time, but 3 years of continued growth and relative top performing ranking above 90 does slow down things a bit for the top stock. The stock just delivered 10% over the last 12 months, compared to 50% from Oct 2012 till Oct 2014.
This slowdown is not because TLV is not a great stock with a great management or because of change in profitability, it is just because performance is relatively cyclical. TLV is a part of a group of stocks. When TLV outperformed, there were stocks underperforming and now that TLV starts to stagnate, another component from the group will deliver outperformance.
All of us cannot be winners all the time. This is why the laws of reversion or balance catch up with performance too. Even if TLV stock price may move sideways and not fall, there should be other stocks in the Romanian stock market universe that should now witness more relative growth than the top ranked Banca Transilvania.
Romanian market is set to become an ‘Emerging Market’, the very reason even if Banca Transilvania moves up or down, there are a lot of things going right for Transilvania.