FTSE 250 constituent Moneysupermarket.com (LSE: MONY) is having a bad 2021. In the year to date, its share price has tumbled a depressing 20%. To put this fall in perspective, the company hasn’t traded this low since 2014. 

FTSE 250 laggard

Before explaining why this strikes me as an opportunity, it’s worth reflecting on why MONY is performing so poorly.

First, we have the ubiquitous headwind that is Covid-19. It saw reduced business in 2020 as banks and financial services tightened their lending criteria in the wake of the pandemic. Naturally, a lack of people travelling abroad also meant a fall in demand for travel-related services such as insurance. 

If this wasn’t bad enough, the current energy crisis in the UK has pushed more investors to head for the exits. The rationale behind this is that fewer people will be looking to change suppliers. Even if they did contemplate doing so, fewer options would make finding a better deal tougher. Again, that could mean less traffic (and reduced earnings) for Moneysupermarket. 

Quality…on the cheap

As I type, Moneysupermarket shares trade at 17 times FY21 earnings. That may not appear ‘cheap’ in the traditional sense. In fact, dedicated value investors might scold me for using the word. Only stocks trading on single-digit earnings multiples really qualify, they might say.

But this number must always be put in context and take into account a company’s track record. On many financial ratios, MONY scores very well. Returns on capital employed — something that star investors like the UK’s own Terry Smith scrutinises — have been consistently high over the years. It also looks financially sound with a strong balance sheet.

The brand is another attraction. In an admittedly crowded field, Moneysupermarket remains one of the best-known comparison websites around. As a regular switcher, I go back to the site at least a few times every year to ensure I’m getting the most bang for my buck on utilities and insurance.

Nor am I about to turn down the dividends on offer. The consensus among analysts is that the FTSE 250 member will return 12p per share in the current financial year. That’s a yield of 5.7% at last Friday’s closing price. Adequate compensation while I await a recovery? I think so. 

All this makes me think MONY looks cheap, perhaps ludicrously so.

Patience required

Obviously, the sticky patch could continue. A resurgence of Covid-19 in the UK could drag the share price of this FTSE 250 laggard even lower. Confirmation of more energy companies going bust could do the same. Harking back to the dividend, it’s vital to note that those payouts are barely covered by profits. This may mean that MONY ends up slashing its cash returns before long if conditions don’t improve. 

The ‘endowment effect’ — the idea that I value things I own more than they are actually worth — is a possibility here too. In reality, it doesn’t matter what I think MONY’s valuation should be. It’s only worth what someone else is prepared to pay for my shares. 

Nevertheless, I refuse to let go of my contrarian mindset. I don’t see anything to make me think that MONY is just 80% of the company it was back in January. The outlook for this business is still positive once the short-term storm clouds dissipate.

At this level, I’m still a buyer.

The post 1 cheap FTSE 250 stock to buy now appeared first on The Twelfth Magpie.

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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.

Since then, some volatility has set in. On Tuesday, AirBnB stock was down to almost $120. Yesterday, it was trading near $140.

Should I be considering the company for my ISA or steering well clear? Let’s start with some positives. 

Why I like AirBnB stock 

According to its website, AirBnB has 5.6 million active listings in 100,000 cities worldwide. This clearly gives it far greater geographical diversification than even the most established global hotel firms. 

Then there’s the variety on offer. According to its website, AirBnB “offers 90,000 cabins, 40,000 farms, 24,000 tiny homes, 5,600 boats, 3,500 castles, 2,800 yurts, 2,600 treehouses, 1,600 private islands, 300 lighthouses, and 140 igloos“. Companies that have something for everyone tend to remain popular. 

And then there’s the brand itself. In my experience, the question “Did you AirBnB it?” is quickly becoming the travel equivalent of “Did you Google it?“. And we all know what’s happened to parent company Alphabet‘s valuation. 

On a purely anecdotal basis, I’ve also found the whole process of booking a place to stay on weekend city breaks easy, convenient, and strangely quite fun in itself.

Given the above, you might wonder why I haven’t bought the stock already.

Reasons to be wary

My first reason relates to valuation. For all the excitement that its IPO caused, AirBnB is still massively loss-making and likely to remain so for some time. With a current market cap of over $80bn, this simply can’t be ignored.

Tellingly, at least some analysts have already turned bearish on the company. Equity research firm Gordon Haskett believes AirBnB stock will likely underperform after such a strong start. I’m confident it won’t be the last.

Aside from the valuation, the fact that AirBnB is just one of the host of companies coming to market recently is worrying. A flurry of IPOs suggests founders believe market conditions won’t get much better.

Another, perhaps inevitable reason why I’m hesitating to buy is due to the uncertainty caused by the pandemic.

While the emergence of effective vaccines has been glorious news, it will still take a while before we can all remove our face masks. Moreover, many people, although desperate for a holiday, may still feel initially safer in hotels with strict hygiene rules. The psychological impact of the pandemic may persist for longer than we think. 

On top of this, I can’t discount the possibility of greater regulation on holiday rentals. 

Be patient

As a Foolish investor, I take a long term approach. My philosophy is simple: buy right and hold. I leave the risky stuff to traders. Right now, I’m placing AirBnB stock in the latter category.

A wobbly share price doesn’t make it a bad investment, of course. Anyone who remembers Facebook‘s 2012 IPO will know that it plunged in value shortly afterward. These days, it’s one of the biggest companies around!

Even so, I’m prepared to be patient. The time to buy will be when expectations are reset back to vaguely sensible levels.

In my view, AirBnB needs to come back down to earth.

The post Should I buy AirBnB stock for my ISA? appeared first on The Twelfth Magpie.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Facebook. 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 close of play yesterday, the former travel titan’s share price was down 85% from one year ago thanks to a spate of profit warnings and ongoing political and economic uncertainty.

Today’s interim numbers, while never likely to be pretty, haven’t helped matters. The stock is being hammered once again as I type.

Is the writing on the wall for the former FTSE 100 constituent?

Battered by Brexit

Despite revenue of just over £3bn in the six months to the end of March being “in line” with that achieved last year, an underlying loss from operations of £245m was reported due to margin pressures. 

All told, the company booked a £1.46bn pre-tax loss after also writing down the value from the merger of its UK business with MyTravel 12 years ago. 

Reflecting on today’s results, CEO Peter Fankhauser stated that there was “little doubt” that the uncertainty around our EU departure had stopped UK customers from booking their summer holidays.

Ominously, the mid-cap also stated that promotional activity, combined with higher hotel and fuel costs, would put a drag on profits for the full year. 

News of “good progress” elsewhere — such as multiple bids for its airline business, the opening of 12 hotels and progress on joint ventures in China and Russia — did little to stop the flood of sellers.

It’s clearly no surprise that Thomas Cook is now making every effort to reduce costs where it can.

A total of 21 retail stores have been shut so far with a review of its foreign currency business also under way. 

Separately, the company has now agreed to a £300m bank facility with its lenders to help it through this winter. Worryingly, net debt already stands at £1.25bn with the company valued at only £350m yesterday. 

Perhaps unsurprisingly, I’m not a fan of the shares, even if they were trading on a little over 3 times forecast earnings before markets opened.

While there will always be some bargains out there, I suggest that Thomas Cook isn’t one of them. 

It might not be doomed but I’ll be leaving this one to the traders.

Better prospects

Of course, there are better bets for those committed to investing in the sector. Online operator On the Beach (LSE: OTB) is an example. 

Despite enduring the same uncertainties as Thomas Cook, the company reported a 41% jump in revenue (to £63.5m) and 14% increase in adjusted pre-tax profit (£15.7m) in its half-year figures on Tuesday. An 18% hike to the interim dividend was also announced.

It wasn’t all sunshine and smiles. Although only a small part of the business, revenue from overseas fell by 56% to just £400,000 after the Icelandic airline Primera Air collapsed into administration in October.

While a larger company than it was a few years ago, much of On the Beach’s appeal remains its flexible business model and the lack of huge costs that come from running hotels and keeping aircraft maintained.

That said, prospective buyers should consider just how likely it is that this advantage might be eroded by rivals over time, not to mention the cyclicality of the travel stocks generally.

Currently, On the Beach’s shares change hands for 18 times forecast full-year earnings.

The post Is this former FTSE 100 stock doomed? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares 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.

Tough year

Let’s get this over with. In the 12 months to the end of September, revenue at Thomas Cook dipped from £7,834m the year before to £7,812m. On a like-for-like basis, however, this represents a drop of £371m. Underlying profit from operations came in at £308m, down from the £310m in the previous year but again, on a like-for-like basis, this still amounts to a sizeable £41m drop once the currency boost from the decline in sterling is stripped out. Profits after tax slumped from £19 to £9m and underlying earnings per share declined from 8.9p to 8.5p.

Any positives? Well, aside from the beneficial impact of sterling’s slide, Thomas Cook’s efforts to shift away from destinations such as Turkey and North Africa have been fairly successful and helped soften the blow somewhat. Levels of net debt, despite almost identical to last year’s figure at £129m, nevertheless represent an improvement of £56m on a like-for-like basis. Although income investors will hardly be salivating at the prospect, the company’s decision to resume paying dividends after a gap of five years also suggests a degree of confidence from Thomas Cook’s board. Indeed, while remarking that it would be taking a “cautious approach to the year ahead,” CEO Peter Fankhauser also reflected that the company remained optimistic of achieving a full-year operating result “in line with market expectations.” Perhaps thanks to these reassuring comments, shares in Thomas Cook jumped by over 7% in early trading suggesting that the market feared worse news than it received.

Contrarian opportunity?

Can the good times return to Thomas Cook? Quite possibly. Bear in mind that this was the same company whose share price recovered from 14p in 2012 to 185p in March 2014, albeit under the steerage of former CEO Harriet Green. As to whether it’s worth waiting for this recovery, I’m not so sure. While shares in the travel operator are undeniably cheap on a forecast price-to-earnings ratio (P/E) of just under 7 for 2017, I think there are far more compelling opportunities elsewhere, even in the travel industry.

One such alternative is pureplay online operator On the Beach (LSE: OTB). In sharp contrast to Thomas Cook, a recent trading update from the £301m small-cap was undeniably positive. Despite operating in the same challenging market, On the Beach has been able to grow revenue by 18% to £36m in 2016. Thanks to more and more holiday-makers going online, the company also managed to increase its market share with daily unique visitors rising by 13% over the last year to 61m. While still a lot smaller than Thomas Cook, On the Beach is also expanding into international markets such as Sweden, suggesting it’s not willing to rest on its laurels. 

On a forecast price-to-earnings ratio of just over 13 for 2017, shares in the Stockport-based business are certainly more expensive but, given its asset-light business model, are a far less risky bet in my opinion.

The post Should investors in Thomas Cook Group plc pack their bags? appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Paul Summers owns shares in On The Beach. 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.