Yesterday's 17.55 per cent run-up in the shares of clothes-seller Esprit Holdings underlines just how much the market loves this stock.
Even though the company has turned in earnings surprises on a regular basis over the past few years, Wednesday's announcement of 76.2 per cent interim profit growth in the second half of last year still managed to stun.
At double the expected profit growth, the magnitude of the increase caught the market wrong-footed. In response, analysts scurried to revise their forecasts upwards and investors rushed to buy the shares, driving the stock to a record closing price of $55.25.
Amid the general euphoria, however, a few professional portfolio managers were quietly selling. For some long-time owners of the stock, yesterday's rally carried the share price beyond a reasonable valuation and into the territory of unrealistic hype. For them, the buying frenzy was a welcome opportunity to scale back their holdings and book their returns from a stock that has risen almost fivefold over the past 30 months.
The profit takers were a minority, however. Most investors praised Esprit's business model and talked enthusiastically about the company's growth potential.
'Over the past few years, Esprit has consistently surprised on the upside,' Baring Asset Management director of Asian equities Khiem Do said. 'The company's global franchise is gaining traction. They are introducing the right type of clothing at the right cost and at the right margins.'
Although headquartered in Hong Kong, expanding in Asia and building a presence in the United States, Esprit still derives the bulk of its earnings from Europe, where the company has managed to sustain handsome sales growth, expanding aggressively into new countries from its established retail base in Germany.