These multiples might look attractive for value-seeking investors. But before you buy into Plus500, I think there are several things you should be aware of.

Shock warning 

Plus500’s fall from grace began at the beginning of February when the company warned profits in 2019 would be “materially lower” than City forecasts. That’s mostly due to the introduction of the new EU rules which limit the amount of money retail traders can borrow from their brokers.

This warning came as a shock to investors and analysts alike because, even though the new EU regulations were introduced in August, CEO Asaf Elimelech declared at the end of 2018 that the 12-month period had been a “landmark year” for the group. He also said the business was “gaining market share in our current markets” as well as “growing rapidly in new jurisdictions.” The CEO also went on to inform investors that the firm was bringing on board new “high value customers,” which are exempt from the new EU rules.

The fact that the company issued such an upbeat trading statement, and then revised its forecasts only a few weeks later, is a big red flag for me. 

Insider selling 

Another red flag is the fact that Plus500’s managers have been dumping shares in the business over the past 12 months. 

In September, five of the firm’s founders halved their stake to around 8%, selling 9.4m shares for a total of £145m. Their last big sale was in September 2016, when they pocketed £100m selling 15.5m. Following these deals, founder ownership has fallen from approximately 30% to less than 10% in just a few years. 

The heavy selling suggests to me that the managers could see dark clouds growing over the group long before the recent warning. 

Misleading figures 

The final red flag against the company I’m going to outline is its accounting. When Plus500 moved its listing from Aim to the main market last June, it had to issue a new investor prospectus, which it duly did. In the prospectus, the company claimed that it had made “no net gains” for three years from betting against its customers. As it turns out, this was a mistake.

According to a recent press release from Plus500, it “suffered a negative revenue impact of $103m in the 2017 financial year due to strong client trading” and the company “incurred a negative revenue impact of $19.5m for the financial year ended 31 December 2016.” 

If such a significant accounting error can pass through the group without being corrected, that’s concerning. 

The bottom line 

Considering all of the red flags above, I think it might be best to avoid the Plus500 share price after recent declines. The stock might look cheap, but I think there could be further declines on the cards if more bad news emerges. 

The post Thinking of buying into the Plus500 share price? Read this now appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.

The market is worried about the impact of new rules restricting retail betters from gambling on risky products will have on these companies. All three have warned investors that the rules will hit profits, although, as of yet, it’s not exactly clear how much of an impact the changes will have. This uncertainty seems to have hit investor sentiment almost more than the new rules on trading themselves. 

However today, Plus has defied market expectations by announcing in a trading update it now thinks full-year results will be ahead of market expectations. 

According to CEO Asaf Elimelech, the company has experienced “positive momentum for October and November,” and, following this performance, management now believes the company is in a “good position for 2019” as it continues to “focus on acquiring high-value customers as well as growing in existing and new jurisdictions.“

Avoiding the storm 

Unfortunately, Plus500 has not provided any figures in today’s update, so we don’t know how far it’s ahead of City targets. 

Analysts are expecting full-year revenues of $664m for 2018, up 52% year-on-year, and earnings before interest, tax, depreciation and amortisation (EBITDA) of $448m, up 73%. However, I expect these numbers to revised higher over the next few months, as analysts revisit their calculations. 

So, is the worst now behind Plus500? Considering today’s trading update, it looks as if the company is coping with the new regulatory environment quite well.

That said, the new regulations placing restrictions on the amount Plus’s punters are allowed to borrow only came into force back in August. So it’s still early days and we don’t know how these changes will impact the company over the long term. Only a few months ago, management warned shareholders that the changes could impact around a third of group revenues. 

On my watchlist 

Considering the above, I’ve put it on my watchlist because, while the company’s outlook is still uncertain, I reckon there’s already plenty of bad news baked into the stock’s current valuation. And any unforeseen good news could result in a sudden rally higher.

Indeed, at the time of writing, shares in the company are changing hands for just under 7 times forward earnings which, in my view, discounts much of the risk surrounding the business. According to my figures, at this valuation, even if revenues fall by 30%, investors are still getting a good deal. 

And on top of this attractive valuation, Plus supports a double-digit dividend yield of 12%. With its history of distributing around 90% of profits to investors, I think this is one of the most shareholder-friendly businesses around. 

The post Why I’d buy this FTSE 250 stock yielding 12% after today’s news appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.

Shares in the company really took off at the beginning of 2010, rising 800% over four years, and the business peaked in 2012 when profits hit £25m. Unfortunately, since then the firm has been grappling with rising competition for its products, which has pushed it to restructure the business. 

In June of last year, management announced its ‘Horizon Strategy,’ which the company hopes will allow it to return to growth. The strategy is focused around two key “anchors” of returning to sustainable growth and improving margins by “concentrating on market segments with long-term growth drivers where we have the potential to become the market leader.” 

Pushing ahead

According to a trading statement issued by the business today, this strategy seems to be paying off. For the year to 31 March 2018, earnings are expected to be in line with market projections and for fiscal 2019, management is expecting to “see an improvement in performance on a reported basis.” City analysts have pencilled in earnings per share growth of just under 8% for fiscal 2018, followed by a similar rate of growth for 2019. And based on these projections, as well as the company’s progress, I believe shares in Oxford could be worth up to 50% more than they are today.

Specifically, shares in the company are currently trading at a forward P/E of just 14, a high multiple compared to some sectors, but not that dear for a highly specialist technology and research business. Oxford’s peer, Judges Scientific for example, trades at a forward P/E of 17.7 and other non-medical peers such as Renishaw and Gooch & Housego trade at an average forward P/E of 25. If Oxford trades up to the same valuation, the shares could be worth as much as 1,425p, 73% above current levels.

Proving its worth 

Another business that I believe is worth significantly more than the current valuation attributed to it is Plus 500 (LSE: PLUS). 

It is something of an anomaly. For as long as I can remember, analysts have been questioning the sustainability of the company’s income, and even the legality of its operations. However, despite these concerns, year after year the firm has produced results for investors. 

So, as the company continues to produce profitable growth, I believe that it is only a matter of time before the market re-rates the stock. Right now shares in the group are trading at a forward P/E of just 8.5, and support a dividend yield of 7.1%, compared to the valuation of 15 times forward earnings for its larger peer, IG Group.

As IG is the sector leader, I believe that it deserves a premium valuation, but even if shares in Plus 500 traded up to 13 times forward earnings, the shares could be worth as much as 2,015p, or 54% above current levels.

That being said, not everyone holds the same view as me. My Foolish colleague G A Chester is avoiding the business because it’s difficult to figure out why it is so much more profitable than its larger peers.

The post Two growth monsters I believe could jump 50% or more appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Gooch & Housego, Judges Scientific, and Renishaw. 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.