Fintech company Wise was directly listed on the London Stock Exchange in July. Since then, its share price has increased by nearly 11%. The initial scramble that most promising IPOs see has pushed Wise shares from 880p to 975p. But when I step back and look at the financials, the stock is not an attractive buy for me at the moment.
A forward P/E ratio of 313, small market share and stiff competition from others in the crowded fintech space make me wary, despite Wise’s potential. The company does not fit my investing strategy of buying at a lower-than-average entry price with room for growth. Here are two shares I’d buy instead.
Shares to buy #1: BAE Systems
BAE Systems (LSE: BA) is the UK’s largest weapons manufacturer and is one of the largest defence contractors in the world.
Its share price has risen 11.1% in the last 12 months and a whopping 40% since November 2020. The company has made a steady recovery after taking a major trade during the pandemic.
BAE’s financials look impressive. Despite restrictions, sales rose by 7% to a little over £10bn in the first half (H1) of 2021 compared to H1 2020. Earnings per share went up 87.4% compared to 2020 figures.
A £1.3bn Eurofighter contract with Germany and £2.4bn munitions contract with the UK added to the £35.5bn order book, ensuring steady revenue into 2022.
BAE is trading at 572p with a P/E ratio below the FTSE 100 average at 10.43, and it’s offering a dividend yield of 4.3% at 23.7p per share. This shows me that the stock is slightly undervalued at the moment giving it plenty of room to grow over the next 12 months.
My concern surrounding BAE is the large net debt of £2.7bn, which could affect future revenue and share prices. Also, the defence industry is subject to governmental regulation and trade to foreign countries depends on international relationships. Despite this, I think the business has a stable cash flow, great growth potential and is an established industry leader. I would definitely add it to my list of shares to buy over Wise.
Shares to buy #2: Mondi
Packaging and paper provider Mondi (LSE: MNDI) is part of the booming e-commerce industry and is on my list of stocks to buy over Wise.
The company is on a great run in the market. Its share price has gone up 35% in the last 12 months and the H1 2021 financial report looked impressive. It was on my list of stocks to buy in July and is up 5.7% since.
Compared to H2 2020, pre-tax profits went up 51.6% to €406m. The company added €552m to its cash reserves while expanding to growing international markets like Turkey and spending €286m in capital investments.
The paper industry is subject to increasing pulp prices and taxes. To offset this, the company launched the Mondi Action Plan 2030, a sustainability project that aims at reducing the environmental impact by reducing emissions by 34% in 2025 and 72% by 2050.
I think despite growing concerns over the sustainability and cost-effectiveness of paper packaging, the company is making strides to secure future revenue and capitalise on the changing landscape of e-commerce. This is why Mondi is on my list of shares to buy over Wise.
