Falling 30% on Monday following a disappointing update was payment network for cross-border transactions specialist Earthport (LSE: EPO). Clearly, investor sentiment is weak at the present time. But could this be an opportunity to buy it for the long run?
Difficult period
The company’s anticipated revenues for the current year are expected to sit between 10% and 15% below current market expectations. This is partly due to delays in some expected contracts and client implementations, as well as a recent change at one of its leading e-commerce clients.
Although many of these contracts are due to complete within the current financial year, they will result in lower revenues. Recent changes at an existing e-commerce client have meant the loss of around 5% of projected revenue, as the client has changed its plans for a UK corridor for domestic payments for reasons specific to it.
Growth potential
Despite this, the company remains upbeat about its outlook. It continues to invest in sales capacity and its pipeline is expected to have a positive impact on revenues by the end of the current financial year. It is seeing continued expansion of international corridors by large existing clients, while its weighted and unweighted new business pipeline for the next financial year is already over twice that of the current year, with further growth expected.
Therefore, it seems as though a turnaround is possible over the medium term. However, in the short run it would be unsurprising for Earthport’s share price to move lower as investors digest its disappointing update. As such, it may be worth avoiding at the present time.
High returns
Also operating within the financial services sector is Prudential (LSE: PRU). The life insurance and diversified financial services provider appears to have a bright long-term future. It is expected to grow its bottom line by 6% in the current year, followed by further growth of 9% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it offers a wide margin of safety.
With Prudential having a dividend yield of 2.6%, many income investors may have dismissed it as a potential buy. However, the company is expected to increase its shareholder payouts by around 8% in the next financial year, which is well ahead of inflation. Furthermore, with dividends being covered 2.9 times by profit, there seems to be scope for them to rise at a much faster pace than profit in future years. This could make the company a strong income play – especially at a time when inflation is already at 3.1% and is forecast to move higher.
As such, Prudential appears to offer a potent mix of income and capital growth prospects. With a diverse business model and a sound track record of delivering on its potential, now could be the perfect time to buy it for the long run.