Shares in online trading platform and FTSE 250 constituent Plus500 (LSE: PLUS) were on the front foot this morning, despite the company posting a drop in revenue. I think this may have something to do with the shares already looking almost embarrassingly cheap. 

FTSE 250 performer

Plus500 announced today it had “delivered significant further positive momentum” so far in 2021. All told, group revenue hit £346.2m over the first six months. Even so, this was far less than the $564.2m achieved over the same period in 2020.

This shouldn’t come as a surprise. The volatility seen in global markets back then was unprecedented. And when you’ve a company whose business thrives on this kind of thing, record performance should really be a given. As such, I’d say this still counts as a positive result.

The ongoing recruitment of clients may also help explain today’s reaction. Plus500 also added a little under 137,000 new customers from January to June. Moreover, the activity level of customers — those actually making trades — continued to be high.     

The outlook’s promising too

Plus said that it was confident it would continue to perform over the rest of 2021 “and beyond.” As a potential long-term investor, that last bit is key for me, as is the company’s desire to become “a global multi-asset Fintech Group.“

In line with this strategy, the FTSE 250 member recently launched a share dealing platform. The idea of providing multiple products to customers is one I like. The more products offered, the greater the possibility of cross-selling to existing customers. The recruitment of new clients is also more likely.  

Recent acquisitions will also allow the firm to enter the potentially very lucrative retail trading market in futures and options on futures in the US. This is something it regards as a “major growth opportunity.“

But don’t ignore the risks

Before markets opened, shares in Plus500 were valued at a little over 7 times forecast earnings. That seems ludicrously good considering how well the company scores on quality metrics such as profit margins and returns on capital. It’s long had a huge amount of cash on its balance sheet too. What gives?

There may be a couple of reasons. First, there’s the ongoing threat of regulation. Today, Plus500 was keen to highlight that its ongoing performance had been achieved despite new rules in its Australian market.

However, there’s nothing to say this won’t cause issues later down the line. Expanding its geographical footprint won’t necessarily provide protection either, as other countries could follow suit. Seen from this angle, Plus500’s apparent ‘cheapness’ does make some sense.

There’s also the opportunity cost of investing here. As the recent market debut of Wise shows, some fintech companies have more pulling power than others. This is especially the case if their share prices jump by double-digit percentages in short order.

Bottom line

There’s no question that Plus500 has enjoyed a purple patch. And, in the absence of another market crash or correction, it does seem like this may be coming to an end. 

Nevertheless, I’d still be willing to buy the stock today if I were diversified elsewhere and looking for companies offering a good mix of value, potential growth and dividends. This FTSE 250 stock continues to get a box-tick from me. 

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Paul Summers 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.

Record results 

Not every company has suffered at the hands of the coronavirus. For evidence, take a look at today’s record results from online trading platform Plus500 (LSE: PLUS). 

Total revenue soared a massive 146% to $872.5m in 2020, thanks to “unprecedented levels of platform usage“. A total of 82 million trades were placed by customers over the period, compared to around 35 million in 2019. This goes some way to highlighting just how popular trading has become over the multiple lockdowns we’ve endured.

Naturally, there’ll come a time when markets and trading activity begin to settle.  Indeed, Plus500 said today is expected revenue in 2021 to “grow from more normalised levels” achieved in 2019.

Even so, I think the dividends on offer still make Plus an attractive option for those looking for income. Right now, analysts are predicting it will return 83.6 cents per share (60p) in FY21. That becomes a yield of 4.4% at today’s share price. As well as being far better than the interest rates offered by even the best Cash ISA, this income looks likely to be easily covered by profits.

Naturally, Plus500 won’t be to every investor’s taste. The ongoing threat of regulation in its industry could keep the share price in check, even if the company succeeds in becoming a “multi-asset fintech group“. This may be one reason why the FTSE 250 member’s valuation — at just 9 times forecast earnings — appears low relative to the market as a whole.

For those looking for their dividend fix, but wary of buying Plus at its peak, I think there’s a great alternative in the index. 

Quality… on the cheap

Another FTSE 250 stock offering great income right now is price comparison site Moneysupermarket.com (LSE: MONY). In fact, this is one of the reasons I began building a position in the company last year.

Analysts currently have the company returning 11.3p in FY21. That translates to a yield of 4.2%. I think that’s sufficient compensation for being patient while trading recovers. In spite of the foggy earnings outlook, I suspect we could see a big increase in demand for the company’s services from UK holidaymakers looking for travel insurance once restrictions are lifted.

Sure, MONY isn’t without risk. It’s certainly not the only option for those looking to compare prices on financial products. There’s also the opportunity cost of not investing elsewhere to consider. After all, the share price has been stuck in the 200p-400p range for the last six years! To me, this would imply that big capital gains look unlikely in the near term.

Nevertheless, I like the valuation. A forecast price-to-earnings (P/E) ratio of 18 feels reasonable for a company that has the quality hallmarks I look for. These include a good brand, net cash on the balance sheet and high operating margins.

On top of this, MONY also generates great returns on capital employed — a key metric used by fund managers such as Nick Train and Terry Smith to separate the wheat from the chaff. 

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Paul Summers owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. 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.

I suspect there could be more gains on the cards over the rest of the year.

Plus 500: market crash winner

Thanks to March’s market crash and the volatility seen since, total revenue at Plus 500 rocketed 281% to $564.2m compared to the same six-month period in 2019. Earnings before interest, tax, depreciation and amortization (EBITDA) came in at $361.8m — a stonking 452% higher. 

Unsurprisingly, the company welcomed a huge number of new customers (over 198,000) over the half-year. Client deposits jumped from just over $467m in 2019 to $1.65bn over the period and 47 million trades were placed — a dramatic increase on the 17.5 million seen last year.

For those already holding the stock, the good news didn’t stop there.

Dividend delight!

In addition to announcing a new share buyback programme, Plus 500 also confirmed an interim dividend of $0.95 per share. That’s a rise of almost 250% on 2019’s cash payout! It also said that it was considering paying a special dividend to holders at the end of the full year. Based on trading over the last couple of months, I think the latter is very likely to happen.

It said today that customer income in the second half of its financial year so far was still “more than double that of the prior year“. Moreover, Plus 500 is absolutely rolling in money. With no debt to its name, the FTSE 250 stock had almost $588m in cash at the end of June.            

The nature of its business means the firm won’t be to every investor’s taste. Nevertheless, it’s hard to be bearish on the company as things stand. 

Indeed, with the shares trading on just six times earnings before today’s results and the possibility that markets could remain skittish for some time to come, I certainly wouldn’t blame anyone for taking a stake now. 

Not quite as tasty

Also reporting today was FTSE 250 peer Domino’s Pizza (LSE: DOM). Unfortunately for its owners, the numbers weren’t quite as tasty as those offered by Plus 500 (although that’s a big ask). That said, they still looked pretty reasonable under the circumstances.

Thanks to a 5.5% rise in system sales over the 26 weeks to 28 June, statutory pre-tax profit from continuing operations came in 13.6% higher at £45.8m. This was despite the company needing to remove collections during the lockdown and “some inevitable and, in certain areas considerable, incremental costs”. 

Looking ahead, Domino’s reported that recent trading had been “encouraging“. Another positive for shareholders was the announcement that it would be reinstating its dividend. The deferred FY19 payout of 5.56p per share will now be paid out on 18 September. 

But let’s not get ahead of ourselves. In line with other businesses that rely on discretionary spending, Domino’s went on to say that it was “too early to conclude how customer behaviour will evolve“. The company’s fractious relationship with its franchisees still needs to be resolved as well.

Having initially bounced back to form in the aftermath of March’s market crash, Domino’s share price has now settled at roughly where it was at the start of the year. Unlike Plus 500, I can’t see a catalyst for the shares to continue rising at the current time.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. 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.

Among those who’ve seen a rise in demand for its services is online trading specialist IG Group (LSE: IGG). Today’s update for the three months to 29 February had a tone similar to those recently released by industry peers CMC Markets and Plus 500.  

Top performer

As expected, the company has seen a “significant increase” in clients using its platform. The number of active traders on its books has soared 21% over the period to 101,700. The last week of the quarter was particularly busy, thanks to the “exceptionally high” volatility, as the world grasped the seriousness of the coronavirus outbreak.

Given this, it’s no surprise IG’s revenue has shot up. Just under £140m was generated over the period, representing a 29% increase compared to the same quarter a year ago.

To put this in context, this was the company’s best quarterly performance since new regulations giving more protection to retail clients were introduced in Europe in 2018. It was also the third-best quarterly performance in IG’s entire history!

Having been a holder of the stock for a while, I welcome these numbers with open arms. I’m also encouraged by the possibility things might get even better in the fourth quarter. This morning, the company revealed it had already brought in £52m in revenue over the first 12 trading days of the period. 

So, are the shares a buy?

Despite falling heavily in early trading, IG’s share price has still fared better than most over the last month. A drop of 20% since mid-February is far easier to accept compared to stock performances in the travel, retail, oil and banking sectors.

Clearly, further falls can’t be ruled out. Moreover, a full recovery in the share price back to levels seen towards the end of 2018 will take time. With IG down to return 43.2p per share to its owners in the current year, I think those holding will receive sufficient compensation for being patient. As it stands, this equates to a yield of 7.7%.

Right now, I’m assuming no cuts to this payout are on the horizon. That said, it’s important to know that Australia will soon follow Europe and introduce new regulations on retail clients. On this issue, IG merely said its actions to mitigate the impact on business were “progressing as planned“. It added that no new information on when rules would be introduced had been received. 

Before markets opened this morning, IG’s stock traded on 15 times forecast earnings. Quite how much faith you place in this and the valuation of any other company at the current time is another thing entirely.

No one, including IG, has any clue how long the current trading environment will last. Predicting revenue going forward is, therefore, tricky. Nevertheless, I maintain this is a quality stock to hold for the long term.

With its counter-cyclical qualities, strong balance sheet, and those aforementioned juicy dividends, I’m likely to buy more of the stock in the current crisis.

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Paul Summers owns shares of IG Group Holdings. 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.

Having said this, not every company’s share price will necessarily suffer as a result of the coronavirus outbreak or other global fears. Here are three that could prove resilient. 

“Trending substantially ahead”

Companies operating in the spread betting/Contracts for Difference space are worth watching. Today, one of the three listed on the London market — Plus 500 (LSE: PLUS) — issued a positive update. Yes, you read that right.

As a result of the fear that’s spread throughout the investing world over the last few days, the FTSE 250 constituent stated that it had seen “a significant increase in levels of customer trading activity” before going on to say that its financial performance over Q1 is“trending substantially ahead” of the same period last year. You’re not seeing language like that from many companies at the moment!

Of course, no one knows if this momentum will last. That said, Plus’s shares were trading on what appeared to be a very cheap forecast price-to-earnings (P/E) ratio of a little under 9 before markets opened this morning and yielding 5.8%. It’s next scheduled to report to the market in April. 

Downturn play

With Bank of England Governor Mark Carney warning that disruption to supply chains could mean a hit to UK growth prospects, it’s understandable if many businesses are getting nervous. Should a prolonged downturn come to pass, one company that may benefit is insolvency specialist Begbies Traynor (LSE: BEG).

Even if you’re confident that the coronavirus outbreak won’t bring the economy to its knees, there’s always the impact of troublesome Brexit negotiations to ponder. Back in January, the company released research showing that just under half a million UK businesses were already in ” significant distress” — a rise of 81% since the beginning of 2016 (the same year as the EU referendum).

Despite this, shares in Begbies certainly haven’t been immune to the recent sell-off and have now fallen back to prices not seen since last spring. This leaves them trading at 13 times earnings. A potential 2.8p dividend in the current financial year has the stock yielding 4.2%.

Stable demand

Call up a chart of its share price performance over the last week and you’ll see why funeral services provider Dignity (LSE: DTY) is the final pick of today’s shares that could protect your portfolio from the current crisis. Its price is currently up 4% since Monday, supposedly on the belief that demand for its what it does will remain stable, even during tough economic times. 

As always, there’s no sure thing when it comes to investing and Dignity could become another victim of the sell-off in time. That said, the fact that it was already trading on a little less than 9 times forecast earnings could mean it suffers less severe selling pressure than other, more highly-rated stocks. 

Regardless of what happens next, it’s worth being aware that the company has faced increased competition over the last few years. The shed-load of debt on the balance sheet is another potential red flag. Last year, the latter came in at almost twice the value of the whole company!

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Back in January, I questioned why FTSE 250 CFD provider Plus 500 had quickly taken the dubious honour of being the most shorted share on the London Stock Exchange. Only a few days later, the company warned that profits this year would likely be “materially lower than current market expectations‘”and the stock plummeted in value.

Yesterday, Plus’s stock was priced around 800p a pop — 60% lower than in August last year. Clearly, those betting against the company called it right and made a lot of money in the process. 

Today I’m turning my attention to another two private investor favourites – polyhalite miner Sirius Minerals (LSE: SXX) and AIM-listed fast fashion giant ASOS (LSE: ASC) and asking whether something similar might happen. 

Funding concerns

Based on the short tracker website, 7.3% of shares in Sirius are currently being shorted. That’s still less than that of troubled firms like Debenhams and Metro Bank (10.4% and 11.2% respectively) but significant enough to make me take another look at the company.

As my Foolish colleague Roland Head mentioned last week, the stock has been on a downward trajectory for some time. Although some of this can probably be attributed to worries over slowing global growth, a lot will be the result of concerns over getting sufficient funding to complete the mine build and get it into production.

Last week, Sirius revealed that it was now considering an alternative financing proposal –submitted by a “major global financial institution” — to replace the one it had been working towards since 2016. The company added that it would be looking to obtain firm commitments for this new plan (and any additional financing) before the end of April.

Somewhat understandably, the stock jumped on the news. However, it’s worth noting that short-seller interest has increased in the last few days too, possibly because those betting against the company believe that securing the cash will still take longer than expected. 

While always a high-risk stock, the next few weeks are clearly of crucial importance for the company’s future. The rewards for investors could be massive but anyone thinking of buying should definitely go in with their eyes wide open. 

Another profit warning coming?

Things have hardly been great for holders of ASOS over the last year either. Priced over 7,500p in mid-March 2018, the shares — like those of Sirius — have now fallen 60% in value.

At the time of writing, 6.8% of the stock is being shorted. Since short sellers face technically unlimited losses if the price rises (hence the need for them to be extremely confident about their research), that’s certainly not something those still holding should ignore.

One explanation is that the shorters think ASOS is likely to warn on profits again.

Back in December, the company shocked the market by stating that it now predicted sales would grow by 15% this year (rather than the 20% to 25% previously expected) and that the already-low 4% operating margin would halve.

There’s an old stock market saying that profit warnings tend to come in threes. With still no resolution to Brexit and the knock-on effect this is having on consumer confidence, it’s certainly possible the company’s trading update next Tuesday could contain more bad news. 

Since we can’t know for sure, I’ll continue to give the stock a wide berth, especially as it trades on a still-eye-watering 57 times forecast earnings. 

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. 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.

My calculations suggest the shares may now offer a 2019 forecast dividend yield of about 8.8%. The company has an impressive track record of paying generous dividends. Is this a buying opportunity for dividend hunters?

In this article I’ll explain why I see Plus500 as a stock to avoid. I’ll also highlight a FTSE 100 stock yielding 8% which I’ve bought for my own portfolio.

What’s gone wrong?

The company’s main problem is the impact of new European regulations which limit the leverage available to retail traders. These are hitting revenue and profits at the firm.

Management now expects 2019 profits to be “materially below” market forecasts. That usually means at least 10%. Consensus forecasts already suggested that profits would fall in 2019. My sums suggest that earnings may now fall by as much as 40% this year.

Why I’d say no

Today’s profit warning was issued alongside Plus500’s 2018 results. These showed that net profit rose 90% to $379m last year. Cash generated from operations rose by 78% to $495m and the company ended the year with net cash of $315m.

However, dividends only rose 18% to $1.99 per share. There was no special dividend and the payout represented 60% of earnings, compared to 96% in 2017. Management appears to be preserving cash for the year ahead.

A second concern is that the company’s founders have been taking money off the table. In December, they sold £145m of stock, halving their collective holdings from 16% to 8%.

I’m also uncomfortable with what appears to be a serious slump in customer recruitment. Today’s figures suggest that new customer numbers fell from about 15,000 a month before the new regulations were introduced, to around 7,000 per month afterwards.

Alongside this, the average cost of acquiring each new customer rose from $677 during the first half of the year to $1,489 during the final quarter of 2018.

Plus500’s business model has always involved high levels of customer churn. Today’s figures suggest that about 40% of customers were replaced last year. If the firm is finding it harder to recruit new traders, I fear that earnings could plummet.

This stock looks cheap at face value after today’s drop. But for me, the risks are too high.

This stock could light up

One high-yielder I’ve bought for myself is FTSE 100 tobacco giant Imperial Brands (LSE: IMB). Although some investors have ethical objections to this business, its financial credentials remain impressive.

Unlike Plus500, customers tend to be very loyal. Although the company is investing in next-generation vaping products under the blu brand, standard cigarette brands require very little investment. As a result, Imperial generates a lot of surplus cash.

Some of this is being used to reduce the group’s net debt of £11.9bn, which was accumulated through a series of acquisitions. I’m keen for debt to keep falling, but I believe the company’s dividend remains affordable.

Imperial’s 2019 forecast dividend yield of 8% is one of the highest in the FTSE 100. Trading on 9 times forecast earnings, I think this defensive business is too cheap and have been buying the shares.

The post I’d avoid 9%-yielder Plus500 after a 30% drop and buy this FTSE 100 dividend instead appeared first on The Twelfth Magpie.

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Roland Head owns shares of Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

Unfortunately, separating high-yielders from likely dividend-cutters can get a bit tricky in a period of share price volatility like the one we’re currently in.

Nevertheless, one company sticks out from the pack when it comes to the size of its cash returns to shareholders.

The perfect stock?

Right now, CFD provider Plus 500 (LSE: PLUS) is forecast to yield over 13% in the current financial year. When even the best easy access Cash ISA offers interest of just 1.45%, that’s mighty tempting.

But there are other attractions. For one, trading remains strong, at least according to the company. In its last update towards the end of December, Plus stated that it had “continued to perform well” in spite of regulatory changes, so much so that management believes its financial performance for the full year will now be better than that previously predicted by the market. 

Then there’s the valuation. Having come under pressure in the second half of last year, Plus’s shares are now 23% lower in price than when they peaked at a little over 2,000p last August, leaving them trading at just 8x forecast earnings for the current financial year. This looks something of a bargain at face value, particularly when it’s considered that the firm also achieves staggeringly high returns on capital employed and great operating margins (even relative to peers IG Index and CMC Markets).

Sound too good to be true? At least some traders seem to think so.

Short interest

At the time of writing, Plus 500 is the most shorted share on the London Stock Exchange. In other words, a significant minority of people are betting on its share price falling in the future. To give some perspective, this top spot was once occupied by the now-bust outsourcer Carillion. 

Short-selling is risky. Since there’s technically no limit to how much money can be lost if a share price rises rather than falls, those betting against Plus must have a pretty good reason for doing so.

Increased regulatory pressure is an ongoing concern, of course, but Plus’s peers aren’t attracting the same level of interest from shorters.

The disparity between the company and its high-quality competitors in terms of returns is perhaps more questionable. Is it really outperforming to such an extent? Or do many simply doubt CEO Asaf Elimelech’s vision of Plus capturing market share and “growing rapidly in new jurisdictions“?

Whatever the reason, this development is a cause for concern, in my view.

Manage your risk

Whether owners of Plus 500 are about to receive a rude awakening is hard to say. 

Shorters can get it wrong. Many betting against Ocado got their fingers burnt over the last year or so as its share price rocketed on the announcement of new contracts.  

Nevertheless, the huge rise in interest from shorters around the shares would at least compel me to re-evaluate whether my portfolio was suitably diversified if I did hold the stock.

We must remember that investment is as much about managing risk as it is about buying the best companies.

Plus’s full-year results are revealed on 12 February. 

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Having peaked at the start of August, shares in market leader and FTSE 250 member IG Index have now fallen almost 35%. While staging a brief comeback over the last few weeks, rival Plus 500‘s stock is still 30% down.

CMC Markets (LSE: CMCX) — the smallest of the three — hasn’t had an easy ride, either. Having breached 200p back in June, the stock has now fallen over 40% in value. Based on the reaction to today’s interim results, a recovery could still be some way off.

Tough times

Despite a 14% rise in the number of trades being made with the company (to a little under 35m), net operating income fell 21% to £70.6m in the six months to the end of September. As expected, a “particularly difficult” second quarter was, according to the company, the result of “a sustained period of low market volatility and range bound markets,” not to mention the regulatory changes introduced in Europe at the beginning of August. Pre-tax profit plunged 76% to £7.2m.

To make matters worse, CMC also saw a slight reduction in its popularity among traders. The total numbers of active clients — defined as those who have traded with the company at least once over the six-month period — fell 4% to just under 44,700. Once rebates and levies were accounted for, revenue per client tanked 22% to £1,413.

Considering how awful these numbers are, it’s perhaps not surprising to see the company take a knife to its dividend. At 1.35p per share (equivalent to half of the post-tax profit), today’s interim payout is 55% below the 2.98p per share cash return promised to shareholders this time last year. If this reduction were to be carried across to the full-year dividend, owners can expect roughly a return of 4.02p in the current financial year. That’s a yield of roughly 3.5% at today’s share price.  

Reasons to be cheerful?

After such a hammering from the market, the question arises as to whether CMC’s stock — trading on 12 times earnings before this morning — is now approaching bargain territory. While there can be no certainty over its direction in the very short term, I’m inclined to be optimistic.

The fact that trading volumes appear to have staged a recovery since August (and client deposits have “not changed materially“) suggests there’s light at the end of the tunnel. I’m also tempted to agree with CEO Peter Cruddas that reputable firms such as CMC will ultimately benefit from increased regulation, even though competition will clearly remain fierce.

Elsewhere, CMC’s strategy of diversifying its operations by making its stockbroking business a “more meaningful part” of the company, looks sound. The migration of 500,000 retail clients to its platform from ANZ Bank in September — a partnership that is predicted to generate roughly £7m in pre-tax profit for CMC on an annual basis — is a positive start.

Combine the above with news of plans to secure a new office in Dubai, an operating licence in South Africa, and a (post Brexit) regulated subsidiary in Germany, and CMC smacks of a cautious buy at current levels.  

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Paul Summers 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.

Looking ahead, there could be further uncertainty for the company, with investor sentiment only increasing pressure. But with improving earnings growth potential and what seems to be a low valuation, it could offer value investing appeal alongside another stock which released a positive update on Tuesday.

Strong performance

The company in question is online service provider for trading Contracts for Differences (CFDs), Plus500 (LSE: PLUS). It released a third quarter trading update that showed strong momentum, although revenue declined by 14% to $100.1m versus the same period of the previous year. This was due to relatively low levels of volatility, as well as the inclusion of two months of trading following the implementation of new regulations.

Encouragingly, market volatility has increased since the end of the period, and the company now anticipates that there will be an improvement to its performance in the fourth quarter. In fact, it’s now guiding the market towards improved guidance for the full year, which could help to improve investor sentiment in the short run.

With Plus500 having a price-to-earnings (P/E) ratio of around 8, it seems to offer a wide margin of safety. Certainly, there could be further challenges ahead under new regulations, but with strong momentum and what appears to be a low valuation, its long-term return potential appears to be improving.

Dividend potential

As mentioned, the Vodafone share price has fallen heavily this year. Investors seem to be concerned about its financial prospects following the acquisition of Liberty Global’s cable networks in Germany and Eastern Europe. Debt levels are due to increase, and this could limit the company’s scope to invest in future growth projects, as well as hurt its dividend growth potential.

In fact, there’s a risk that dividends could be cut. It seems as though investors are pricing in this possibility, with the stock now having a dividend yield of over 8% following its share price fall.

If dividends are cut, it could help the business to invest in future growth opportunities. Certainly, it would mean a lower income for investors, but if it means a stronger business that is more capable of delivering organic growth then it could prove to be a good move. And with the stock market seemingly expecting a dividend cut, it may not affect the company’s valuation as much as would normally be the case for a dividend reduction.

With Vodafone forecast to post a rise in earnings of 15% next year and it trading on a price-to-earnings growth (PEG) ratio of around 1.2, it seems to offer good value for money. While unpopular, it could prove to be a strong performer in the long run.

The post Think the Vodafone share price is a bargain? Read this now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Vodafone. 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.