The stock is currently trading for just below $1,000. So, should I be buying shares in the electric vehicle (EV) manufacturer? Let’s explore.

Tesla’s positive Q1

Late last week Tesla released its Q1 results. And there were plenty of positives to take away. Within the period, the firm produced over 305,000 EVs and delivered 310,000, despite ongoing supply chain issues. It also managed to increase revenues by 87% from the same period a year ago, while gross profit increased a substantial 132%. Given the tough economic conditions the firm has faced, such as limited production at the firm’s Shanghai factory, these are impressive results.

What I also like about Tesla is the ambition of Musk. The company anticipates growing its rate of deliveries at 50% for a number of years ahead. And this will be boosted by the recent opening of its gigafactory in Berlin. The factory will aid Tesla’s expansion into Europe and will produce 500,000 vehicles and millions of battery cells every year. If this growth continues, it’s hard to see the share price slowing down any time soon.

Musk also recently promised that Tesla’s robotaxi will be ready by 2024. The vehicle will have no wheels or pedals, and Musk has reiterated the vehicle will be focused on creating the lowest cost-per-mile price. This could provide a huge boost for Tesla’s growth in the near future. However, it must be noted that Musk has failed to deliver on deadlines numerous times, putting the 2024 target in doubt.

Tesla concerns

One major concern for me is competition. While Tesla has shown its resilience over the past few years, as established manufacturers dive deeper into the EV space, this may Tesla’s dominant position in the market. For example, rival Volkswagen has been making headway in EVs. And it poses a large threat to Tesla’s European sales.

Please note, investing in stocks and shares puts your capital at risk, and Tesla’s high valuation is of further concern to me. With a current price-to-earnings (P/E) ratio of 134, it’s easy to see it as overvalued. For context, General Motors has a P/E of 5.95. When looking to buy Tesla shares, this overvaluation is a deterrent for me.

Should I be buying?

Tesla’s latest results show that despite its doubters, it seems to able to continue growing. In a period plagued with supply chain issues, its delivery numbers are also impressive. Further, continuous rising revenue is a tempting factor when considering buying shares.

However, its overvaluation concerns me. And despite its strength in the EV space, I think we could begin to see this undermined in the years ahead as more manufacturers make the inevitable transition into the sector. Yet while I won’t be buying Tesla shares today, they’re most certainly on my watchlist for the near future.

The post Tesla shares have fallen below $1,000! Should I be buying? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

However, investors have seen a resurgence as a rally over the last week has pushed Rolls-Royce shares back above 100p – with the stock even breaking the 110p barrier momentarily – amid takeover rumours. So, will this momentum continue? And is Rolls-Royce a buy for me? Let’s take a look.

Potential takeover

Last week saw the price of Rolls-Royce shares spike as stories circulated via the Betaville website that the FTSE 100 jet engine maker could soon be involved in a “significant corporate transaction”. Sparking speculation of an acquisition, investors rushed to buy shares in the firm. The share price jumped 19% last Friday.

However, since then, sentiment surrounding the takeover has wobbled. And the stock’s price has drifted downwards, currently floating just above the 100p mark. The main reason for this is due to the British government. With a golden share in Rolls-Royce, it has the ability to veto any potential deals. It seems unlikely that it would allow the sale of the firm to a foreign bidder. But as a long-term investor, this would never be enough alone for me to deem Rolls-Royce a buy.

Wider outlook

Instead, I look at wider factors that may affect Rolls-Royce shares’ performance in the future.

One of these is the full-year results released last month. Within these, there were many positives to take away. A standout was the firm’s statutory profit, which stood at £124m. The year before, the same metric was a £3.1bn loss, showing the massive strides Rolls-Royce has taken to recover post-pandemic. For me, these are encouraging signs.

On top of this, the business has also undergone a large restructuring. A total of around 9,000 jobs have been axed. And, while this is bad news for the ex-employees, decisions such as these have produced a £1.3bn saving in annual expenses for the firm.

Increased air travel will also benefit it. As Rolls-Royce generates a large part of its revenues from servicing commercial jet engines, the return of passengers to the air will hopefully provide a boost this year.

However, one concern is the fact CEO Warren East is stepping down at the end of 2022. He has been at Rolls-Royce for eight years, meaning his departure may spell uncertainty in the future.

Would I buy?

So, with these factors in mind, do I think Rolls Royce shares are a buy? Despite the slim chance of a takeover, I think in the long term that the current share price holds plenty of opportunities. The restructuring efforts the firm has taken should set it up to hopefully prosper in the future. And the fact that it’s once again profitable may be an inclination of this. Increasing air travel in 2022 as more Covid restrictions disappear will also help the business going forward. As such, at the current price of 102p, I would be willing to add Rolls-Royce shares to my portfolio.

The post As the share price breaks 100p, are Rolls-Royce shares a buy? appeared first on The Twelfth Magpie.

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Charlie Keough has no position in any of the shares mentioned. he 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.

Cheaper fuel

Operating profit before exceptional items for the six months to 30 June rose by 37% to €975m, on the back of cheaper fuel and strong passenger demand in the second quarter of 2017. Passenger unit revenue, a key measure of performance in the industry, increased by 1.5% in Q2, the first quarterly gain in almost three years. The company said it expects a double-digit percentage improvement in operating profit for the full year.

These figures were achieved in spite of the IT failure at British Airways in May, which cost the company €65m in additional compensation fees and baggage claims, and a €44m hit from adverse foreign exchange movements that was mainly down to sterling’s recent weakness.

Looking ahead though, I’m concerned about growing capacity in the short-haul market. Just this week, Ryanair and easyJet both warned of the risk of a late-summer price war among European budget carriers. Although IAG is somewhat protected by its greater focus on long-haul, the airline is hardly immune to market forces.

Still, IAG seems attractively valued, with shares trading at a forward price-to-earnings ratio of just 6.9, based on analysts’ 2017 forecasts. As such, now may be a great time for value investors to consider the airline group.

Earnings beat

Elsewhere, shares in specialist engineering group IMI (LSE: IMI) fell by as much as 4% on Friday after the company announced its interim results.

Although statutory pre-tax profits jumped by 26% to £89m in the six months to 30 June, beating analysts’ estimates, CEO Mark Selway warned about challenging market conditions ahead.

“In the remainder of the year, organic revenue is still expected to be below last year, principally driven by order phasing in Critical Engineering. However, second half margins will show a modest improvement compared with the same period in 2016, supported by both rationalisation savings and improved market conditions in Precision Engineering. Based on current market conditions, we expect full-year 2017 results will be modestly above current market expectations,” he said in today’s announcement.

Revenue was also 11% higher at £848m, while adjusted earnings per share rose by 16% to 28.4p, as its first-half figures were given a big boost by the sterling’s weakness. Excluding currency effects, IMI’s revenue in the first half would have been broadly flat — although that would still have been better-than-expected given the slowdown in capital spending in the energy sector, which has affected sales of its fluid control systems.

Reassuringly though, IMI raised its interim dividend by 1.4% to 14.2p, which indicates management’s confidence in future earnings. The shares currently yield 3%, with a payout ratio of less than two-thirds of earnings.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended IMI. 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.

Aggressive competition

Notably, the company faces growing competitive pressures in the retail energy market, as many of its larger competitors have recently launched aggressively-priced introductory deals in order to protect market share. Things are looking better in the telecoms market, as it is seeing an increase in revenues because of higher prices and its customers taking up more services, in particular fibre broadband.

Thanks to adjusted pre-tax profit growth of 7%, the company remains committed to its progressive dividend policy. It raised dividends by 4.3% to 48p per share, which gives it a current yield of 3.9% for the full-year.

Looking ahead, the company said it expects to deliver further growth as it rolls out new services and strengthens its competitive market position by leveraging its personal approach to looking after its members. Management has also been encouraged by the results from the soft launch of its home insurance product. It is confident that the addition of insurance would boost cross-selling opportunities and also, in itself, become a significant source of revenues as its steps up marketing for the new product.

“In the meantime, we expect to continue growing our customer base over the coming year, with a target increase of 5-10% in the number of services we supply, and a further increase in our dividend,” said chief executive Andrew Lindsay.

Still, Telecom Plus shares are pricey at 21.2 times forward earnings. And although I reckon the company still has more growth ahead of it, I’m avoiding the stock until valuations come down a bit more.

Double-digit growth

Also reporting today was cloud computing company Iomart (LSE: IOM). Revenue for the year to 31 March increased by 17% to £89.6m, while adjusted pre-tax profits rose by 11% to £22.4m.

The Glasgow-based group delivered another year of double-digit revenue and adjusted earnings growth. However, this failed to satisfy investors as shares in Iomart had fallen 5% to 322p at the time of publication.

It’s good to see the company’s Easyspace segment return to organic growth last year, as registrations had declined a little last year, and were a drag on its overall performance in 2015/16. Cashflow from operations was also significantly higher, with an increase of 22% to £37.8m, and this enabled management to raise its dividend payout for this year by 90% to 6p per share.

Looking forward, City analysts expect Iomart to increase its bottom line by 8% over the next two years, which would represent a modest slowdown in growth. Still, its shares seem reasonably priced, with Iomart trading at 17.8 times forward earnings this year, and 16.5 times its expected earnings in 2018/19.

The post Can these promising growth shares maintain their momentum? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any 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.

Overall, Equniti said revenue last year increased 3.7%, to £382m, in line with analysts’ expectations, driven by strong growth in investment services and software sales. EBITDA prior to exceptional items, a measure of underlying profitability, grew 7.2% to £92.4m, while earnings per share cam in at 10.2p, up from a loss of 92.8p in 2015.

Non-discretionary

Many in the outsourcing sector have seen businesses put off making big investment decisions following the Brexit vote of last June. However, since Equiniti provides services that are largely of a non-discretionary nature — ranging from running payroll to managing pension and share-save schemes — it has seen no let up in demand in recent months. Equiniti provides the critical infrastructure that underpins big businesses and government bodies — as a result, its business model is intrinsically more defensive than some of its peers.

Looking forward, Equiniti sees strong growth opportunities from increased cross-selling of services and favourable regulatory drivers, such as tighter anti-money laundering rules and stricter financial regulation. It is also planning to boost its bottom line by reducing costs and enhancing its scale — Equiniti expects to lift its margins by around 25 basis points a year, after an improvement of 80 basis points in 2016.

The company has an attractive progressive dividend policy, with management planning to increase its full-year dividend by 16.5%, on a pro forma basis, to 4.75p per share. This would still give its shares a relatively low yield of 2.5%, but given its dividend payout ratio is just 30% of underlying earnings there’s plenty of scope for further dividend increases down the line.

City analysts are bullish on Equiniti — out of the four recommendations, three are strong buys and one is a buy.

End of growth

Another company that reported its full-year results today is car dealership company Lookers (LSE: LOOK). The Manchester-based company said full-year profits increased for the eighth consecutive year thanks to steady growth in new car sales.

Revenue increased 18% in 2016 to £4.3 billion, while earnings per share was 4% higher, at 15.87p. However, the increase in revenue and profits failed to enthuse the markets. Shares in the company fell by more than 2% today, as management warned that industry forecasts point to a 5% reduction in new car sales this year.

New car sales have risen every year since 2009, but this trend appears to be coming to an end, as demand is set to cool amid a rise in import prices owing to the impact of the weak pound. A cooling market may not just be detrimental to the top line for car dealers, it could also hurt their already thin margins — Lookers’ underlying operating margin fell by 20 basis points to 2.2% last year.

The outlook for the sector has no doubt hurt sentiment towards Lookers’ shares. Lookers is currently trading at a forward P/E of 8.3, with shares yielding 2.8%. Although valuations seem cheap, I’m wary of buying in at the very top of the market.

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Despite the dip in profits, St James’s Place benefits from some strong fundamentals. It continues to attract steady inflows — net fund inflows over the past year amounted to £6.8bn — 17% higher than last year’s figure of £5.8bn. This combined with last year’s robust investment gains helped funds under management to grow by 28% last year to £75.3bn.

Additionally, its European embedded value (EEV) new business contribution, which is a measure of the long-term value of new business generated by the company over the past year, increased 18% to £520.2m, while EEV net asset value per share rose 22% to 900.7p. And with shares now trading at less than 1.2x EEV, St James’s Place has rarely been so attractively valued.

CEO steps down

But what seemed more important to investors was the announcement that David Bellamy would be stepping down as chief executive of the company. At one point, the news sent shares down more than 6%, but they have since recovered to 1,068p, just 2% below yesterday’s close.

Bellamy has been chief executive for 11 years, and under his tenure, shares in the company have more than doubled. In his place, chief financial officer Andrew Croft will take over by the end of the year.

Looking ahead, I expect Croft will continue to deliver attractive returns to shareholders. St James’s Place still has strong growth opportunities with its growing distribution network, and the company benefits from very strong customer loyalty — with retention rates of around 95%.

Dividend growth continues to impress, with the company today announcing a 20% increase in its final dividend to 20.67p a share. This brings total dividends to 33p a share, which gives its shares a reasonable 3.1% yield.

Provident Financial

Provident Financial (LSE: PFG) also announced its full year results today. Pre-tax profit for the sub-prime lender soared 25.7% to £343.9m.

Investor response today was muted though, with the shares broadly unchanged at 2,923p by midday, as concerns grow about slowing growth at the company — customer and average receivables growth at Vanquis Bank, its main business, slowed to 8.7% and 13.8% last year, from 9.9% and 19.6%, respectively.

Still, I’m still very excited with the stock as the company continues to deliver double-digit earnings growth and asset quality remains robust, despite macroeconomic headwinds. Today’s trading statement suggests that the group’s underlying fundamentals remain strong and continues to be in line with market expectation.

While I acknowledge that slowing UK growth could lead to rising loan losses, I believe Provident is well cushioned by its robust margins and low operational gearing. Moreover, forward-looking valuations metrics remain attractive, with shares trading at a forward P/E of 15.1, falling to 13.9 next year.

Also, dividend growth continues to benefit from robust growth in capital generation, with Provident Financial declaring a 13.0% increase in its final dividend this year. This brings total dividends this year to 134.6p a share, which gives Provident Financial a tempting yield of 4.6%.

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1. Lloyds’ full-year statutory profits increased 163% to £2.5bn in 2016, due primarily to lower PPI provisions. It’s important not to read too much into this, as volatile and one-off items can distort the underlying story.

2. Underlying profits, the figure most closely watched by analysts, declined 3% for the full-year. That’s despite a slight beat in underlying profits in the fourth quarter, which rose 2% on the previous year. Probably the biggest disappointment from Lloyds’ update, though, was the decline in net interest income, the difference between interest earned and the interest paid out on deposits, which fell by just over 3%.

3. Net interest margins (NIM) gained 8 basis points to 2.71% in 2016, despite the Bank of England’s decision last August to reduce the base rate to 0.25%. For 2017, Lloyds expects NIM to remain above 2.70%, before the impact of its acquisition of credit card company MBNA. Contrast this with HSBC, which should have benefited from recent US interest rate hikes, NIM fell 15 basis points to 1.73%.

4. 2016 total revenues declined by 1%, due to a small reduction in Lloyds’ loan portfolio and lower card interchange fees, following the cap introduced in late 2015.

5. Despite this, Lloyds’ cost to income ratio fell 6 basis points to 48.7%. Contrast this with HSBC and Barclays, which both recently reported a cost efficiency ratio in excess of 60%, this demonstrates the advantage of Lloyds’ simple, low cost, retail and commercial bank business model.

6. The asset quality ratio, a measure of the amount of impaired loans relative to its total loan book, rose slightly from 0.14% last year, to 0.15%.

7. PPI provisions this year fell to £1bn, down from £4bn in 2015. The cost of legacy misconduct issues appears to be tapering off — and as you might expect, this contributed for much of the improvement in statutory profits.

8. Lloyds appears to be the best capitalised bank of the UK’s Big Four banking groups, as it has the highest common equity Tier 1 ratio (CET1) of 13.8%. Looking forward, it expects to generate 170-200bps of CET1 per annum pre-dividends.

   With the bank maintaining a CET1 ratio well above minimum regulatory requirements, I expect much of Lloyds’ capital generation in the coming years will be returned to shareholders through increased dividend payouts. That’s because, as Lloyds already has a leading market share in most UK markets, there will be few M&A opportunities, as regulators will keep a watchful eye on further consolidation in the industry.

9. Lloyds’ tangible net assets per share is 54.8p. With shares currently trading at 70.3p a share, the bank is one of the most expensive on its multiple on tangible book value — currently 1.38x.

10. Lloyds intends to pay a special dividend of 0.55p on top of its regular dividend of 2.5p, which brings total dividend per share in 2016 to 3.05p. This was a positive surprise, as City analysts had only been expecting dividends this year to total between 2.9-3.0p. Not only does this highlight the bank’s strong capital position and its growing profitability, it demonstrates that Lloyds’ long-term dividend potential may be undervalued by City analysts.

The post 10 telling metrics from Lloyds Banking Group plc’s results appeared first on The Twelfth Magpie.

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Jack Tang has a position in Lloyds Banking Group plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.