If you enjoy the excitement of contracts for difference (CFDs), you might have the courage to hold shares in Plus500 (LSE: PLUS), a company that offers them.
Over five years, the share price is up 60% at 830p, but that conceals wild gyrations between a low of 198p and a high of 2,076p. And if you think you’ve seen some big swings before, this one suffered a 58% slump over the course of a week in February after warning that 2019 profits were set to come in “materially lower” than expectations.
The price slid further, but since April’s low, it’s more than doubled, and the stock was one of the FTSE’s biggest climbers on Tuesday after a Q3 trading update revealed a “strong improvement in quarterly performance … with good revenue growth and a strong increase in EBITDA.”
Cheap shares?
Analysts had been predicting a 65% crash in EPS, though that would put the shares on a P/E of only eight. A prospective dividend yield of 6.4% would still be around 1.9 times covered. In the light of the firm’s extreme volatility, I won’t even consider 2020 forecasts, but on the face of it, such a low valuation makes the shares look tempting.
But a couple of things count against Plus500 for me. One is that it’s a perpetual favourite with shorters, who were right about the big crash earlier this year. The other is that I see profits from high-risk activities like CFDs and similar as being potentially very volatile, and I much prefer predictable earnings.
It’s not for me, and I’d say you need nerves of steel to even think about it.
Investment
A handful of Tuesday’s biggest morning risers were in the investment services business, with Allied Minds (LSE: ALM) picking up 4% in early trading. There’s no specific news, but I suspect the diminishing chances of a no-deal Brexit coupled with growing prospects for an early election are providing a bit of confidence to financial investors in general.
Allied Minds was a Neil Woodford pick, and that curse really hasn’t helped as the share price is down 75% over the past two years. Allied invests in technology start-ups, so the attraction for Woodford was clear — though as he was making his own decisions over start-ups too, perhaps it was an early warning of his over-reliance on such assets?
Cheap now?
But what about now, after the share price slump? What price would be good to get aboard? Well, Allied pretty much messed up its early investing, but it has been trying to pull itself around. The focus of the firm’s interim report, released in September, was on the amount it’s been investing. And it’s growing, with Allied having put $24.3m into its portfolio companies during 2019, with $15.3m of that coming after June’s halfway date.
Co-CEOs Joseph Pignato and Michael Turner stressed the firm’s strategy of “focusing exclusively on supporting our existing portfolio companies” while reducing expenses, but is that enough to make the shares a buy?
Allied Minds is loss-making at the moment, so there’s no real way to put a valuation on the shares. So you really have to decide based on the companies the firm has put its faith in. But picking good startups is a perilous endeavour, as Neil Woodford discovered. I’m steering clear, but there are some great growth stocks out there…