Shares that fall 50% in 12 months must be cheap shares, mustn’t they? Well, not necessarily. It depends on a number of things, including the reason for the fall, the company’s outlook, and the current valuation.
Here I’m examining three shares that have recorded 12-month falls of around 50% or more, and thinking about whether they look like good buys for investors now.
Ocado
I’m starting with online groceries pioneer Ocado (LSE: OCDO), which has seen a 58% fall over 12 months. We’re looking at another of those boom-and-bust stocks here, with the shares having previously soared in 2020 as the pandemic spread.
A growth in online shopping like we saw in 2020 was always going to boost business for companies like Ocado. But it can’t substitute for actually making a profit, which Ocado has never done, not even in 2020.
In the early Ocado bull run, my biggest fear was that multiple funding rounds would be needed. And we’ve just seen a new one, with the company raising £578m through a share placing.
With the latest funding in place and the Ocado share price down so far, is it a bargain now? I still think there’ll be significant risk until we see profits. But it just might be a good buy.
Cineworld
Cineworld Group (LSE: CINE) suffered in the pandemic, as lockdowns kept people away from the movies. After a partial recovery in 2021, the shares are on the way down again. Cineworld has fallen 74% in the past 12 months.
But business appears to be strengthening, and the company reported a decent profit in 2021. We have to wait until September for first-half results this year. And investors’ attention could drift in that time.
Cineworld is heavily shorted by hedge funds, but they do sometimes get it wrong. In this case, it surely has to hinge on the outcome of the company’s legal battle with Cineplex. A $1bn damages judgment is currently against Cineworld, but it’s under appeal.
If Cineworld is unsuccessful, it will be in trouble. Right now I see an investment as a gamble. As I remember hearing in a movie once, the question is “Do I feel lucky?“
Ashmore
Ashmore Group (LSE: ASHM) shares didn’t quite make the 50% fall, at 46% over 12 months. But I’m stretching it slightly, as this is the stock I like best of the three.
Ashmore is an investment management company, focusing on emerging markets. The sector can be resilient during economic downturns. But in this case, the emerging markets thing adds extra risk.
Assets under management declined $9bn, or 10.3%, in Q3. Of that, only $3.7bn is down to net outflows, so I don’t see any need to panic. There’s short-term risk, especially as fallout from the war in Ukraine continues. But I think emerging markets assets could be especially good for investors to get into during tough times, with a long-term approach.
Ashmore is the one I’d be most likely to buy for my ISA, of these three potentially cheap shares.