The stock market is looking fairly stable, perhaps surprisingly so. But some individual FTSE share prices are gyrating wildly.
On Tuesday, we saw several share prices soaring by 30% and more. At the same time, there were double-digit drops too.
Which should we go for, the ones that look like they’re recovering? Or the fallers, which might have bigger rebound potential?
Volatile share prices
Cineworld Group (LSE: CINE) has been one of the biggest victims of the coronavirus crash, losing almost 90% of its value at one point. It’s been erratic too, but it has bounced back to a slightly less painful loss of 64% during the crisis.
The share price actually perked up when the markets opened on Tuesday, gaining an early 12%. But it turned down soon after, and stands 11% down as I write, putting it among the losing FTSE share prices of the day.
Like many, Cineworld has suspended its dividend during the pandemic crisis. Some investors will see that as really bad news, but I reckon it’s exactly the right thing to do. Companies should be focusing firmly on their balance sheets and their long-term survival, not on pleasing the short-term City folks who want this year’s cash in their pockets.
So, avoid or buy? At today’s price, Cineworld shares are on a trailing P/E of only around four. If the lockdown ends soon and Cineworld gets back to business, there could be a nice recovery profit here.
But at year-end, Cineworld was sitting on $3.5bn in debt, for a debt-to-EBITDA ratio of 3.4. And that could bite. I see far less risky shares elsewhere in the FTSE.
Oil & gas contrarian?
The collapsing oil price has hurt the sector, and could lead some of the smaller and heavily indebted operators going bust.
But, hit by a pandemic slump along with the rest of the FTSE oilies, Enquest (LSE: ENQ) has been bucking the downward trend in the past couple of weeks. It was among Tuesday’s losing share prices with a 12% drop, but it’s gained close to 50% since a low at the end of March.
It should get a boost from the Opec agreement to cut global output and shore up prices. There hasn’t been much of an effect yet, mind, with a barrel still commanding only around $32. But the price could start to gain fairly soon, once the world’s surplus starts to reduce.
Enquest has, in its favour, an operating cost that averaged only $21 per barrel last year. And that should give it a little breathing room while prices are down.
FTSE gamble?
But Enquest’s big problem, like so many smaller oil companies, is debt. It stood at $1.4bn at year-end, though that represents a modest debt-to-EBITDA ratio of 1.4.
I think Enquest could turn out to be a profitable investment, if oil prices recover far enough before it starts to feel the financial pinch. If not, could we see the firm turning to the markets for a new equity issue?
Enquest is a gamble for the brave, though I don’t invest in the hope of simply getting lucky myself.