The company is now in the process of a dramatic £900m recapitalisation plan, which will see its largest shareholder pump £450m into the business. In exchange, Fosun will receive 75% of the equity in Thomas Cook’s travel division and 25% of the equity in its airline. 

Management is hoping that this deal will allow existing shareholders to retain their holdings in the business, although the firm has warned that current shareholders will be “significantly diluted” as part of the deal. 

According to the group’s press release announcing recapitalisation: “The current intention of the board is to maintain the company’s listing. However, the implementation of the proposed recapitalisation may, in certain circumstances, result in the cancellation of the company’s listing.“

Unclear outlook 

Management’s assessment of the situation is based on Thomas Cook’s current financial position. This is not a fixed situation, and it could change quickly as we move into the critical winter season. 

Tour operators usually rely on a busy summer period to see them through the winter, when they typically lose money. Thomas Cook wants to seal the deal before winter starts to give it enough liquidity to survive until next season. If winter sales come in below expectations or the transaction takes longer than expected to complete, this could cause significant problems for the group.

Double or nothing 

So, at this point, it’s difficult to tell what the future holds for the Thomas Cook share price. That being said, some City analysts believe that the stock could be worth as much as 18p based on what we know right now.

Of the 10 analysts covering the company, three have a “buy” rating on the stock. Six recommend investors “hold” the security and just one is a seller. The median price target of these analysts is 13p, more than 100% above current levels. As mentioned above, the highest target is 18p and the lowest is zero.

These figures seem to suggest that the Thomas Cook share price could double your money. However, I wouldn’t rush to follow these forecasts from the City. These analysts don’t know much more than the rest of the market right now. For example, they can’t say with any certainty whether or not the recapitalisation plan will wipe out shareholders. 

The bottom line

Their assessment of the underlying value of the business might be correct at this point, but that could change quickly if the company has to ask for more money from investors or creditors. That’s the big unknown here, and it makes it impossible to tell right now how Thomas Cook’s restructuring will unfold. As a result, even though some analysts reckon the stock could be worth as much as 13p, I would avoid the enterprise for the time being. 

The post Could the Thomas Cook share price double your money? 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.

Indeed, since the beginning of the month, the stock has jumped by more than 100%. At one point the stock had surged by more than 200%.

I’m not buying into this rally because Thomas Cook is in the process of completing a massive recapitalisation plan and full details of the scheme are not yet available. The £750m rescue deal will strengthen the group’s balance sheet, and a debt-for-equity swap is also being considered as part of the process.

Management has already confirmed that “existing shareholders will be significantly diluted as part of the recapitalisation,” and it is currently unclear how or if existing holders might be able to take part in the recapitalisation. 

“Shareholders may be given the opportunity to participate in the recapitalisation by way of investment alongside Fosun and converting financial creditors on terms to be agreed,” Thomas Cook said in its recapitalisation announcement. 

All of the above seems to suggest that current shareholders could be wiped out in the recapitalisation. With this being the case, I’d make the most of the recent rally to sell shares in Thomas Cook and buy its fast-growing peer, On The Beach (LSE: OTB) instead. 

Booming sales

On The Beach is one of the reasons why Thomas Cook has started to struggle in recent years.

The low-cost online holiday provider allows customers to book their own trips without having to go through a travel agent. By cutting out the middle man, On The Beach can offer holidaymakers much more for less, and customers are flocking to its offering. 

Sales have grown at an average rate of 23% per annum since 2013, and net income has surged from £3.4m to £21.5m. 

City analysts had been expecting the firm to report further earnings growth of nearly 40% for 2019, but unfortunately, it now looks as if the company will miss this target. 

Buying opportunity

According to a trading update issued by the business today, On The Beach’s sales are suffering from sterling weakness. The company says that unlike its peers, it does not use currency-hedged pricing for the packages that it provides its customers. Therefore, as the value of sterling has declined, prices have increased, putting off customers. As a result, management now expects to miss its growth targets for the year. 

In my opinion, this is just a small setback for the firm. On The Beach has been able to succeed thanks to its unique business model, investment in technology and efficient customer service. Management is still spending heavily in these areas and is not cutting back, despite headwinds. The group is consolidating its position in the market, according to the recent trading update, and refining its marketing tactics as well as the customer offering. 

In my opinion, these efforts should help the company maintain its competitive position in the market and return to growth when currency volatility subsides. With that in mind, I reckon it could be worth making the most of today’s slump to snap up some shares in On The Beach as a long-term investment. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended On The Beach. 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.

At the end of its most recently reported financial period, the company had gross debt of £1.7bn, a colossal figure accumulated over the past decade, thanks to some expensive acquisitions and expensive capital allocation decisions. Now the business is seeking a bailout. Specifically, it has agreed on a £750m rescue deal with its largest shareholder, Chinese conglomerate Fosun, and lenders.

Dilution coming

As part of the deal, a significant amount of the company’s bank and bond debt will be converted into equity, substantially diluting existing shareholders. While we don’t know the exact details of the debt for equity swap just yet, the company said: “The proposal envisages that a significant amount of the group’s external bank and bond debt will be converted into equity, to be agreed following discussions with financial creditors.“

Considering Thomas Cook’s current market-cap of just £73m, this suggests the share price could ultimately be worth less than 1p when the deal completes, according to my figures. 

If we assume the business converts around 50% of its gross debt to equity, the company will have to issue shares equivalent to £850m. At a price of 5p, I estimate the group will need to issue 17bn new shares to meet this target. With just 1.5bn shares in issue currently, this implies each share’s interest in the business will be diluted by more than 90%. 

This is only a rough guide and doesn’t take into account other factors, such as the “injection of £750m of new money” the firm is planning to receive as part of the deal to “provide sufficient liquidity to trade over the Winter 2019/20 season.” My numbers also don’t take into account the disposal of the airline business. 

Downside risks

Ultimately, the post-recapitalisation value of the Thomas Cook share price will depend on many factors, including the market sentiment. However, as my figures above show, the risk is skewed to the downside here. In my example, only 50% of the group’s debt is converted to equity. The final figure could be much higher than that. Besides, if the company’s troubles spook customers, its decline will only accelerate. 

So, overall, it’s very hard to see a scenario where the Thomas Cook share price is worth more than 1p when the company has completed its recapitalisation. With this being the case, I would sell the shares without delay. There are many other more attractive places to invest your money today.  

The post Why I think the Thomas Cook share price is worth less than 1p 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.

Volatile price action

The directors pledged to evaluate the offer along with “multiple” other bids either for the whole or parts of the airline business. In the excitement, the shares went as high as about 19p by 10 June. But on that day, Thomas Cook revealed it’s in discussions with its largest shareholder, Fosun International Limited, following a preliminary approach regarding a potential offer for the Thomas Cook tour operator business.

But since then, the speculative froth has blown off the share price a bit and it’s back down at about 15p as I write. Investing in distressed shares like this one is not for the faint-hearted. The volatility is frightening and I still think things could go either way in terms of shareholder outcomes from here.

Back in May, I reported on the grim outlook for the business characterised by competitive pressures, an uncertain consumer environment, and higher fuel and hotel costs. Cash is flowing out of the business and debts are piling up. On top of that, the holiday sector is highly cyclical and I reckon things could get a lot worse if we see a general economic downturn.

A precarious position

Thomas Cook faces an existential crisis, in my view. The firm’s position seems precarious, and I don’t think any potential suitor will be prepared to pay very much for any of the company’s assets. One shareholder risk is that any future tangible offer will value the company below where the share price sets the valuation today. Even at the recent 15p, I reckon the shares carry substantial risk to the downside for shareholders.

In general terms, I think there’s much more to successful investing than focusing on firms that have just demonstrated their ability to fail in some way. I know fallen share prices can be tempting, and sometimes valuations can look low. But what we’re really doing when we buy such shares is betting on a recovery in the business.

It’s a tall order for a business to turn itself around. Most don’t. If you require a turnaround to ensure a successful investment outcome, what you’re really asking for is a complete change in trend for the operations, finances and share price. Unlikely. Especially, I’d argue, with a distressed cyclical such as Thomas Cook Group.

Despite the preliminary interest shown by other firms, I’d still avoid Thomas Cook and look for better investments elsewhere. But as a group, I’m wary of all cyclical companies right now.

The post Why I think the Thomas Cook share price could go much lower appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

At the beginning of May, shares in the company slumped to a multi-year low of around 10p when speculation started to grow that the business would be forced to declare bankruptcy as its problems mounted. However, since touching the low, several interested parties have come forward to offer to buy parts of Thomas Cook, which has improved investor sentiment towards the business. 

Indeed, German airline Lufthansa has been rumoured to be looking at Thomas Cook’s British and Scandinavian airlines, and the private equity firm Triton Partners has indicated that it might be interested in acquiring the group’s northern European business.

So far, neither of these potential suitors have put forward a concrete offer for the business, although they might not now get the chance to do so.

A new suitor

Over the weekend it emerged that Chinese conglomerate, Fosun International Limited, which is already Thomas Cook’s largest shareholder, has made a “preliminary approach” to buy the group’s tour business.

According to reports, Fosun is working with Wall Street investment bank JP Morgan on a potential offer for Thomas Cook and is planning to break the business up if it wins control. This plan is only in its early stages, but its already attracting controversy particularly from the transport workers’ union which has already declared that it will fight “tooth and nail” against any new job cuts if a sale does lead to a break-up.

On top of this, Fosun will have to have a plan in place to sell Thomas Cook’s airline business before it takes over the group, because, due to EU aviation rules, airline operators based in the EU must be majority owned by European companies or individuals. Fosun does not meet this criterion. 

Odds stacked against a deal

In my opinion, with all these problems Fosun needs to overcome before it can make a deal, it looks as if the odds are stacked against the business. What’s more, even if a deal is announced, I reckon there’s a good chance regulators or the unions could derail the merger. There’s also the risk that no agreement comes out of the negotiations. “There can be no certainty that this approach will result in a formal offer,” the company said in today’s press release outlining the approach. 

Not a good investment

Generally speaking, investing in a company just because it is a takeover candidate is not a sensible strategy as most deals fall apart at the last minute.

In this case, Thomas Cook is struggling to survive, and if the enterprise does not manage to sell itself, then the group’s future is extremely uncertain. According to analysts at Citigroup, Thomas Cook’s tour operations and the airline are worth £738m, but its debt is worth around the same, implying little if no value for shareholders if the worst should happen and the company collapses.

With this being the case, the stock looks to me to be somewhat of a gamble at the current price, and not something I’d be willing to invest in, even as bidders circle. 

The post As bidders circle, is the Thomas Cook share price a buy? 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.

Spiralling out of control

Thomas Cook has been in trouble for some time, but until this year, the group seemed to be dealing with its problems. However, during the past few months, the situation has started to spiral out of control. The travel business reported a pre-tax loss of £1.5bn the first half of its financial year, shaking consumer confidence and raising concerns over management’s plan to divest its airline business.

The company was planning to divest the airline ops and use the money to eliminate its entire £1.2bn debt mountain, accrued through a series of acquisitions. However, it is believed that bids are falling far short of this target, with analysts estimating a final sale value that could be as low as £650m or as high as £1.3bn.

The big problem the company now faces is what one set of analysts has called a “vicious circle” whereby customers stop booking with the group due to concerns about its financial health.

During the past few years, there have been several high-profile bankruptcies in the travel industry, leaving many customers stranded abroad, an experience no holidaymaker wants. To avoid falling into this trap, analysts believe customers will stop booking with Thomas Cook altogether, exacerbating the company’s decline.

The group’s problems date back to 2011 when the company closed the second of two major acquisitions that left it with around 1,300 high street stores selling package holidays. The problem is, consumers are increasingly finding it easier and cheaper to book holidays online, leaving Thomas Cook and its FTSE 100 peer, Tui Travel (LSE: TUI) struggling to catch up.

Brewing problems

Indeed, Tui is suffering from precisely the same issues. Only a few days before Thomas Cook reported its breathtaking loss, Tui reported an underlying loss before interest tax and amortisation of €301m for the first half of its financial year, from €170m in the same period a year earlier.

As well as changing consumer habits, Tui is also suffering from the grounding of the global Boeing 737 Max fleet. The company has 15 of these planes in its 150-strong fleet with a further eight more on order.

The one advantage the Anglo-German business has over its UK rival is its stronger balance sheet. The level of net debt varies throughout the year, but at the end of its financial year following the vital Summer season, Tui’s balance sheet is usually in a net cash position. That said, there has been some speculation that the company is hiding the majority of its obligations in joint ventures, which are not consolidated onto the balance sheet. This is something we should keep in mind when valuing the stock. I’m also worried about its cash generation.

For example, last year, the group produced a free cash flow from operations of around €200m but paid out €381m in dividends to shareholders. This clearly isn’t sustainable, and as a result, I’m sceptical that the company can maintain its current 7.8% dividend yield.

So overall, considering all of the headwinds buffeting the travel industry of right now, I think it might be worth giving Tui a wide berth for the time being.

The post Could this FTSE 100 income giant be the next Thomas Cook Group? 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.

On top of that, the accounts revealed mushrooming net debt and a more than 40% increase in the outflow of cash from operations up to a massive £693m over the six-month period. Thomas Cook is doing the opposite of what a business should be doing. Whichever way you look at things, the firm is losing money instead of making it.

Does it have comeback potential?

However, highly financially geared cyclical companies like this can stage dramatic and fast share-price recoveries and I must own up to having played the upside swing in the shares before. But is this another opportunity to dive in for the upside potential or have the company’s operations deteriorated too far this time? I fear that this time the share could be a dead duck and this may be one crash too far.

I last wrote about the firm in February when the shares were at 35p and said back then I wouldn’t attempt to execute a long-term buy-and-hold investment with Thomas Cook because of its “cyclical, often-troubled business.” I did wonder if there could be “potential in the shares for me to open a shorter-term position.” But I concluded then that the shares were “risky”. That risk came home to bite because profits are still falling and the stock is much lower now.

A grim outlook

There isn’t much cheer in chief executive Peter Fankhauser’s words in the half-year report. He described an “uncertain consumer environment across all our markets.” Factors such as last summer’s long heatwave and “high prices in the Canaries” reduced demand from customers for winter sun, “particularly in the Nordic region.”

He also thinks the Brexit process is stuffing the company because many in the UK are delaying their holiday plans for the summer. I think that’s a good point because the weak pound means that foreign holidays are more expensive than they used to be.

The outlook is grim. Fankhauser said in the report that ongoing “competitive pressure” resulting from consumer uncertainty is affecting the firm’s margins. On top of that, higher fuel and hotel costs are further headwinds likely to affect progress over the rest of the trading year.

Piling up debt

Meanwhile, the cash is flowing out of the business and the debts are piling up. I’m beginning to think Thomas Cook could be a serious Brexit casualty. All it would take is a general economic downturn and we could see the firm bust, or coming back to the market to raise more funds. I think the shares are extremely risky and I wouldn’t touch them with a bargepole now, despite past trading successes I’ve enjoyed with the stock.

The post This is what I’d do about the Thomas Cook share price right now appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

To put things in perspective, 2018 was a terrible year for the stock and it plunged around 80%. That was fuelled by two profit warnings, escalating borrowings, and a slashed dividend. The company has problems, and the valuation had been languishing at a low level to reflect that reality.

Even now, with the share price bobbing around close to 35p, the forward-looking price-to-earnings ratio for the trading year to September 2020 is below four. Although if you look at the enterprise value, which accounts for all the debt, the rating almost doubles. So the valuation isn’t as low as it appears at first glance.

Tough trading

Nevertheless, today’s action demonstrates how responsive investors are to news from the company. In the three months to 31 December, revenue rose 1%, which delivered an underlying operating loss of £60m, up £14m on the loss the firm posted in the equivalent period last year. That sounds horrendous. But in fairness, the firm’s profitability seems to be skewed to summer trading. But even that situation didn’t stop it plunging into a net loss of some £163m last year, so slippage on profitability now looks like a grim position to be in.

The company puts the weakness down to ongoing “highly competitive” market conditions at the end of the summer season in the UK, and weaker demand for winter holidays in the Nordics. Most of the damage occurred in the company’s tour operator arm, which experienced weak trading in the UK and Northern Europe. But that was offset to some extent by a “good’ performance in Continental Europe. Meanwhile, the airline arm performed well, the company said, because the seasonal loss it produced was the same as last year’s “strong comparative.”

Worrisome debt

I prefer to invest in firms that enjoy profitable trading whatever the season. It’s starting to look to me that Thomas Cook’s business is just, well, not very good. As much as I enjoy going away on holidays, I don’t think the tour and travel industry is the best to back up my wealth-generating investments.

The figure for net debt stood at a massive £1,588m on 31 December and the firm said it met its bank covenant tests on that date. But the fact that the directors felt the need to mention bank covenants at all raises a big red warning flag for me. Debt is uncomfortably high, and if trading falls off a cliff, such as during some future recession, those covenant tests could fail.

Thomas Cook tells us it’s addressing some of its 2018 challenges by reducing committed airline capacity for 2019 and increasing its focus on “high quality, higher-margin hotels and destinations.” On top of that, there’s the usual line about bearing down on costs that troubled companies often use.

I wouldn’t attempt to execute a long-term buy-and-hold investment with Thomas Cook and its cyclical, often-troubled business, but there could be potential in the shares for me to open a shorter-term position. However, I view the shares as ‘risky’, despite the potential for a profit rebound.

The post Should I grab shares in Thomas Cook Group, up 15% today? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any 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.

On Tuesday, the FTSE 250 firm issued its second profit warning in two months and suspended its dividend. The news has pushed the shares down by another 22% at the time of writing.

The Thomas Cook share price has now fallen by 70% so far in 2018. Should we start buying, or is this still a stock to avoid?

What’s gone wrong?

Although sales rose by 6% to £9,584m last year, underlying operating profit fell by £58m to £250m during the 12 months to 30 September. The main reason for this was an £88m fall in profits from the Tour Operator business, which was forced to offer heavy discounts late in the season.

Although profits rose by £35m at Thomas Cook Airlines, much of this was cancelled out by £28m of “legacy and non-recurring charges” at group level.

Shareholders will be disappointed that the dividend has been suspended, but a sharp rise in debt suggests to me that this was a necessary precaution. The net debt was £389m at the end of September. That’s nearly 10 times greater than the £40m reported this time last year.

Management said the company is still compliant with its banking covenants, but I think debt could become a serious concern if trading doesn’t improve quickly.

Good news on the horizon?

Chief executive Peter Fankhauser said that although the UK market remains very competitive, he’s confident the group will be able to report stronger profits and improved cash generation next year.

Analysts’ forecasts before today were for 2019 earnings of 8.9p per share. This would put the stock on a forecast price/earnings ratio of just 4.2. However, I suspect these forecasts will be cut after today’s news. With debt up sharply and an uncertain outlook, I plan to avoid this stock for now.

One stock I would buy

Pub chain EI Group (LSE: EIG) has already been through a tough restructuring process and is now delivering a steady recovery. Formerly known as Enterprise Inns, EI’s share price has risen by 30% so far this year.

The company’s estate is divided into three divisions. Managed Pubs are staffed and run directly by the firm. Like-for-like sales rose by 7.1% in this division last year, suggesting a strong performance.

The Publican Partnerships division operates tied pubs that are leased or run by tenant landlords. Finally, Commercial Properties owns pub and non-pub properties that are leased to independent businesses.

EI has indicated that it’s open to selling off some or all of the Commercial business. This could help accelerate debt reduction and leave the firm in a position to restart dividend payments.

The stock could still be cheap

In recent years, EI’s board has chosen to buy back shares rather than pay dividends. With the stock trading at a 44% discount to its book value of 334p per share, this approach makes sense. It provides excellent value for money and boosts the book value of its remaining shares.

Profits have now stabilised and the group’s cash generation remains excellent. I believe EI could deliver attractive gains over the next few years. I’d rate the shares as a buy.

The post Thomas Cook Group crashes another 20%. Here’s a FTSE 250 stock I’d buy instead appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Roland Head 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.

A series of profit warnings have been behind the decline. An unseasonably warm summer in the UK hit demand for overseas holidays, and now the group is paying for it in lower expected profits.

Analysts believe the company will now report profit before tax for the full year of around £150m, down from the previously expected £200m.

In my view, the market’s reaction to this downgrade has been too severe. The sell-off has pushed the shares down to a valuation of just five times forward earnings, which seems too low for a business that still has a leading position in the UK holiday market. What’s more, an improvement in bookings for summer 2019 should see investors return to the company. If and when they do, it looks as if the stock has the potential to triple from current levels as the rest of the sector is trading at a forward P/E of 15. This level of reward is certainly worth the risk, in my opinion.

Founder return

Superdry (LSE: SDRY) was flying high at the beginning of this year. The casualwear fashion retailer seemed immune to the rest of the retail sector’s woes, and investors were willing to award the stock a high multiple as a result.

Unfortunately, the positive sentiment hasn’t lasted. Year-to-date, the stock is down around 60%. The company’s problems are two-fold. Julian Dunkerton, Superdry’s co-founder, has been a vocal critic of the current management, which has shaken investor confidence. At the same time, a profit warning last month showed investors that Superdry is as not as invincible as it once appeared to be.

I’m hesitant to recommend buying the shares at this level for both of these reasons. I’ve never been an expert in fashion and today’s retail environment only makes trying to understanding the outlook for the sector more complex. 

With this being the case, even though the shares are trading at a historically cheap forward P/E of 8.9, I’m not rushing to buy. I’d like to see some signs of a recovery before making a move.

Looks too cheap

Indivior (LSE: INDV) is another stock that looks cheap on a historical basis, but I’m inclined to avoid due to its mixed outlook.

Right now, shares in the pharmaceutical business are changing hands for just 10.2 times forward earnings, compared to the pharmaceutical sector average of 16, which looks cheap at first glance. However, City analysts are expecting earnings per share to slide by nearly 50% over the next two years. 

In some respects, this is a conservative estimate because new competitors are edging in on Indivior’s key opioid treatment market all the time. And the company is having to fight increasingly hard to maintain its market share. 

With this being the case, even though the business looks cheap after the recent decline (the stock is down 60% over the past five months), I think the shares deserve a low valuation considering the uncertain outlook for the business. Therefore, I rate Indivior as a ‘sell’.

The post These FTSE 250 stocks have plunged 50% in 12 months. Is it time to buy? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Superdry. 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.