Does this plunging FTSE 100 stock offer good value now?

A year ago, I wasn’t impressed with the prospects for shareholders in the FTSE 100’s Pearson (LSE: PSON).

The publisher and learning services provider had issued several profit warnings and rebased its dividend down. I looked at the numbers in the full-year report last year and said: “It’s hard to for me to find any reason to buy the shares.”

The share price stood at 891p back then. Today, it’s at 556p and the stock is weak on this morning’s release of the full-year report for 2019. Avoiding the stock has been a good move, so far.

Recovery potential?

But what about now? Sometimes a fallen stock can offer good value and may have the potential to recover. However, in this case, by my reading of today’s report, I still can’t find a reason to invest in the shares.

Underlying revenue came in flat year-on-year and adjusted earnings per share plunged by 18%. Meanwhile, net debt rose by almost 26%, to £1,016m and operating cash flow dropped “by £95m.”  The figures look dire, to me. Yet the directors found the courage to raise the total dividend for the year by 5.4% — that rebased payment is creeping up.

Pearson talks about its strong balance sheet, but I reckon the firm has a potentially problematic level of debt. After all, a net debt-load of just over £1bn doesn’t sit well when compared to the net cash generated in the year of £369m.

The company is in the middle of a restructuring programme aimed at adapting towards digital operations and products. Chief executive John Fallon said in the report that Pearson is now “a simpler and more efficient company.” And there’s a pipeline of new products and services. But I find his view of the outlook to be a little anaemic. He wrote in the report: “Pearson is now well placed, in time, to grow in a profitable and sustainable way.”

A long haul ahead (potentially)

It’s the “in time” that bothers me. Maybe I shouldn’t try to over-analyse the utterances of company directors. However, my impression is of a company aiming to adapt to modern markets with some success, but it looks likely to be a long haul before operations and the financial trading figures turn around.

I could be wrong about that, but I’m not prepared to invest my own money in the shares to find out. Just like a year ago, I’d shun the risk that comes with investing in this single company’s shares. Instead of Pearson, I’d rather invest in the FTSE 100 itself by putting money into an index tracker fund to embrace the diversification it would offer.

Pearson’s shares have plunged, it’s true. But I can’t see much value, so I’d continue to avoid the stock despite the firm’s turnaround hopes.