An unfashionable stock

boohoo (LSE: BOO) is one of the UK’s biggest fashion retailers. The online fashion retailer had already been 30% down this year, but plunged a further 12% after it released its FY22 results. Nonetheless, it’s managed to recover most of its post-earnings loss since then.

The firm had already been starting to see a slowdown in sales growth due to “Significantly longer customer delivery times as a result of the pandemic”. Nevertheless, its new distribution centre in the US is expected to go live in mid-2023. With next day and two-day express delivery options available, this could help ease the supply chain constraints that boohoo is currently facing, and help the stock price.

However, with inflation continuing to weigh on consumer spending, I expect sales growth to continue declining. Management shares my sentiment too, as guidance for FY23 is for low-digit revenue growth. Expensive freight costs have also impacted its bottom line as the firm saw its profit margin decline from 5.2% in FY21 to -0.2% in FY22. For that reason, I won’t be buying this stock for now.

In the eye of the storm

The unfortunate events of the Russia-Ukraine skirmish has battered the Ferrexpo (LSE: FXPO) share price. Commonly known for being a high-dividend yield stock, the stock is now trading at 65% off its all-time-high.

The Ukraine-focused firm faces a large amount of uncertainty given the ongoing war there. Any further escalation might run the company out of business as its mining operations are located just east of Kyiv, where it’s more susceptible to Russian attacks. Additionally, China’s city-wide lockdowns have driven iron ore prices down. This will inevitably impact Ferrexpo’s top line in the near to medium term. Most importantly, the firm decided to defer its dividend payments. The board said that it will continue to assess the situation in Ukraine and make a decision on dividends when appropriate. With many investors initially buying the stock for its dividend, this is a stock I’m avoiding.

Getting the boot

Aside from sky-high inflation, Dr Martens (LSE: DOCS) will also have to worry about the recent retail sales figures. Although positive for the month of April itself, retail sales for the three months to April fell 0.3% as high inflation hurt purchasing power. That’s one reason why its stock is down 50% this year.

The majority of the firm’s revenue stems from the Americas and EMEA region. With inflation continuing to spiral out of control, this doesn’t bode well for Dr Martens’ near-term outlook. As central banks in these regions rush to raise interest rates, its debt levels start to become even more alarming. The firm has a debt-to-equity ratio of 140%, a declining free cash flow, and higher operating expenditure. These aren’t factors that are favourable when I invest in UK stocks, especially in a high interest rate environment. As such, I’ll be looking to purchase other shares with much more favourable fundamentals.

The post 3 UK stocks to avoid this summer appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Purchasing dirt-cheap British shares, and knowing I’ll own them for decades, strikes me as a fantastic method to develop long-term wealth. Right now, I think that many great British companies are trading for way below their true values. That being said, nobody knows where share prices will go next, especially in the near term. I might easily stock up on what I believe are bargain shares now, only to discover that they’re much cheaper a year from now. This is why, when I buy shares, I fully intend to own them for at least 10 years.

I’m buying dirt-cheap British shares today

History shows stock markets have beaten practically every other investment over the long run. If I can somehow buy shares while they’re cheap rather than costly, they’ll do even better. I think that recent market downturns and the ongoing effects of the Covid-19 pandemic have created some fantastic buying opportunities. Some company shares are at their lowest prices in over a decade and I’m eager to scoop them up while I can. For example, Rolls-Royce is currently trading at 94.16p, its lowest since 2005. 

I must keep in mind that just because a stock is cheap and British, doesn’t mean it’s automatically a good buy. There’s usually a solid reason prices have fallen. Sales may be declining. The costs of doing business may be increasing. The competition could be too fierce, and smaller, more agile competitors may be stealing market share. The company’s management plan might have gone off the rails or consumers may have lost interest in its product.

However, there are a few key metrics I’m keeping an eye out for that could indicate when a company’s stock is selling for far less than it ought to be. These indicators can be the P/E ratio, the discounted cash flow or even the amount of investment pouring into the firm to help develop new products.

The key is to hold for the long term

Before buying British shares that appear to be dirt-cheap, I’ll examine them for all of these risks. I prefer organisations that have experienced minor setbacks and appear to be on the mend. In some circumstances, the setback was beyond their control (the pandemic is a good example). In other cases, the market may have reacted too strongly to a single set of disappointing data. Their current prices may not reflect their future possibilities in this situation.

To keep with the Rolls-Royce example, the aeronautics company took a serious hit to revenue in 2020, while operating costs also went up. But after careful restructuring, it was able to come back to profitability in 2021. This restructuring could now go on to increase its profit margins for years to come. All I need to do is be patient.

Of course, the biggest risk is that the firm will never recover. Sometimes, no amount of restructuring can save a company. Just ask Toys ‘R’ Us. To counter this, I would establish a well-balanced portfolio of at least a dozen equities to spread my risk. As global stock market volatility increases, there should be plenty of cheap British shares to choose from.

The post I’d buy dirt-cheap British shares today and hold them for a decade appeared first on The Twelfth Magpie.

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• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As a value investor, this recent dip has attracted my attention. I’m always looking for cheap shares that can diversify my portfolio, but I need to understand first if this is a stock I should avoid.

Looking at Cineworld’s financials

I’m not blind to the fact that Covid-19 has left an already beleaguered cinema industry in an even worse position. This hard year was reflected in Cineworld’s 2020 performance. 

Revenue for 2020 declined 80.6% to $852m from $4.3bn in 2019. The company also had to issue more debt to survive this period. Some $810m of new debt was raised, putting net debt at over $4.3bn.

However, having soared above 100p in the last few months, I believe that its current price is a more realistic entry point. 

Share price potential

Cineworld’s debt raise should keep it afloat long enough to see the reopening of cinemas. The company recently opened its locations in the US, where it makes around three-quarters of its sales. Although these cinemas are limited to two-thirds capacity, they’ve started to bring in some much-needed revenue for the group.

For example, over the Easter weekend, the firm benefited from the launch of Godzilla vs Kong. The blockbuster raked in $32.2m in the US over its three-day opening weekend. In my opinion, this proves that bums will also return to seats when the UK reopens cinemas on 17 May.

I also think that if Cineworld can survive the onslaught of Covid-19, it will be able to pick up and grow. Some other cinema chains may not survive, and the movie industry desperately needs to sell tickets again. Cineworld could mop up the market share left behind by the closure of competitors. 

Risks to Cineworld’s share price

Obviously, the cinema sector is a massively risky investment. Even prior to the pandemic, Cineworld shares were not setting the world alight. In fact, before their March 2020 drop (when they sat at 182p), Cineworld’s share price was already 44% off its 2017 all-time highs of 325p. This is because cinema attendance around the world has been declining for years as streaming has taken centre stage. 

That brings me to the big unknown of whether there’s actually enough interest in cinemas to keep the industry alive post-Covid. We know there’s some interest, but will cinemas ever return to their heyday attendance levels, and will Cineworld shares keep rising? 

I’m not sure.

So, is it a buy?

I believe there’s too much risk to justify me investing in any cinema stock right now, let alone Cineworld.

I could be wrong, and the easing of pandemic restrictions in the US and UK could see Cineworld return to life from this summer onward. But with the taking of market share by online streaming services such as Netflix and Disney during lockdown, I’m unsure as to whether any summer boost will really be enough.

Ultimately, I just feel that the negatives far outweigh the positives when it comes to Cineworld stock.

The post Is Cineworld stock a good investment right now? appeared first on The Twelfth Magpie.

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Jamie Adams owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aston Martin

Traditionally associated with speed, luxury, and James Bond, Aston Martin is a long way from its previous heights. Since IPOing in 2018 at 10,914p, the Aston Martin share price has fallen to around 2,030p. However, in the 12 months, the luxury carmaker has made a comeback, rising 45% from 1,401p to 2,030p.

Though this price doesn’t scream buy for me, the company is definitely heading in the right direction. I am most impressed with its new and improved management team, including chair Lawrence Stroll and new CEO Tobias Moers. These two experienced business operators have improved the company’s outlook significantly, while Stroll seeks to revamp Aston Martin’s reputation.

After leading a £500m takeover of Aston Martin last year, Stroll has rebranded his Formula 1 team under the manufacturer’s name. The strategy is twofold: bring success to the track, which will help transform the fortunes of this ailing brand. 

While all of these are exciting developments, I believe that Aston Martin is still a risky investment. The luxury carmaker has made a string of mistakes over the past few years. It failed to match supply and demand, which led to excess production of its vehicles. It also borrowed too much money as it tried to develop new models.

As a result of these two mistakes, last year, the company was forced to ask shareholders and other creditors for more money to keep the business afloat. It has also had to write off millions of pounds of excess stock. 

I definitely need to see a bit more innovation and electric vehicle investment before I invest. In the meantime, my foolish colleague Rupert has some other dirt-cheap UK stocks as alternatives.

Rolls-Royce

Two weeks ago I was asking myself if I should buy Rolls-Royce shares. Over the last 12 months, the Rolls-Royce share price is down by almost 10% to 111p from 120p. 

Rolls-Royce actually accrued losses of £4bn in 2020. However, this company is a leading aerospace player, and that’s where my bullish attitude comes in. Once lockdown ends and full flight normality returns, a lot of airplanes will need maintenance. Rolls-Royce sold £3.2bn of civil aircraft engines in 2019 and recorded a further £4.9bn in service revenues for the sector. Even in 2020, with Covid-19 severely limiting flights worldwide, service revenues came in at £2.8bn.

There is still a major risk that the airline industry could be irreparably damaged for years to come. With European Covid-19 cases on the rise, there is a real danger of prolonged flight grounding. This will severely affect its bottom line. 

Despite these bear cases, I’m firmly set on adding Rolls-Royce to my shortlist due as I believe its aerospace strength makes it worth the risk. 

The post Should I invest in Rolls-Royce or Aston Martin shares right now? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.