Finding the right opportunity within the growth space can be tricky. This sector is known for having much higher price-to-earnings (P/E) ratios. It can also have a lack of stable income, and sometimes even an absence of profitability. Despite this, I believe that by using a growth investing filter, I can identify promising opportunities, with strong underlying fundamentals that could set up my portfolio for long-term success.

The first company I’ve identified by my filter is Plus500 (LSE: PLUS), an online provider of contracts for difference (CFD) trading. The share price has had an interesting few years, rising a staggering 63.7% in 2020. It slightly dipped in 2021, but went on to increase almost 27% this year.

Growth characteristics

Plus500’s impressive level of annual earnings growth was the primary reason for the growth filter detecting the company. Earnings per share have grown by an average of 35% a year for the last 10 years. Furthermore, forecasts suggest earnings will grow by an additional 26.9% next year.

In addition to these strong growth characteristics, the company has high profit margins. This is combined with significant cash flow generation, and considerable efficiency in generating income from invested capital. Furthermore, debt is minimal, which is somewhat rare within the growth sector.

Dividend earning potential

Another appealing element of Plus500 is the fact that the company is currently paying a dividend of 5%. In fact, it has done so for nine years consistently. It’s quite unusual for a growth company to pay such a high percentage. Additional income is often used to fund expansion, rather than pay dividends. This could potentially provide an additional source of returns for me.

Future headwinds

Despite these appealing underlying fundamentals, it’s important I recognise that the company may face future headwinds. The world of CFD trading is seeing increased regulatory scrutiny. And that means clampdowns on access to this sector by retail investors are possible.

The company also saw significant levels of earnings growth over the pandemic. This was due to an increase in the number of people entering the world of trading. But active customers dropped by 19% over the third quarter of this year, indicating that user growth is likely to continue to disappoint”.

Yet with its potential for share price rises over the next few years, I think Plus500 gives me a promising opportunity to add to the growth portion of my portfolio. I’d consider adding this stock to my holdings when I have some spare cash.

Despite all the negatives in current market fundamentals, I’ve noticed two trading platform shares that seem to thrive on it, with impressive balance sheets, past performance, and dividends.

Why are trading platforms thriving

Trading platforms that specialise in providing solutions to retail traders who are looking for rapid execution, and short-term positions benefit from a very profitable business model. These traders, more experienced in financial markets and keen to take on higher risk, make a high number of trades regularly compared to traditional investment accounts.

The popularity of trading apps particularly has seen tremendous growth. Traders in these markets will also often use leverage on their position, allowing platforms to collect revenue from interest swaps as well as their markup on each trade.

The cryptocurrency bull run of 2021 certainly helped fuel demand for such trades, but since then uncertain equity markets have been just as attractive to opportunistic traders seeking volatility.

Plus500

The first of these shares is Plus500 (LSE:PLUS). The Plus500 share price boats 25% year-to-date growth at the time of writing. This follows several positive outcomes, compared to market expectations, in the company’s financials.

Earnings for Plus500 have grown to all-time highs of approximately £801m – 22.57% year-to-date – however, its profit margins (44.80%) are lower than they were last year (53.10%).

Plus500’s balance sheet is cash-rich and debt-free, meaning a rising base rate is unlikely to be of concern. It also positions it well to achieve the board’s plans for US expansion and targeting acquisitions as announced by the CEO, David Zruia, following the interim report.

I’ve held Plus500 shares since 2021, and I’m looking at possibly adding to my position while retail traders still seem keen on high risk, particularly when the current 6.8% dividend yield is on offer.

IG Group Holdings

IG Group Holdings (LSE:IGG) is my second strong contender for medium to long-term growth. The share price is down 8% year to date as I write – respectable losses compared to the FTSE 250.

IG Group has a similarly strong balance sheet, however. The full-year 2022 results showed revenue at approximately £965m, up 13% from last year’s results. Profit margins decreased to 41% from 44% in FY2021, a lesser decline than Plus500.

With earnings per share also exceeding analyst estimates by 6.7%, this leaves market expectations optimistic, with forecast revenue growth of 5.5% next year.

IG’s current dividend yield stands at 5.83% but, unlike Plus500’s, has been steadily increasing on average over the last five years.

I’m keeping a close eye on IG Group, as I think it has the potential to provide competitive dividend income as well as share price growth that is, most importantly, sustainable.

Legal & General

Top-tier insurer and investment manager Legal & General (LSE: LGEN) remains a great option for income, in my opinion. Barring the frankly dodgy year that was 2020, the FTSE 100 company has a great history of regularly increasing the amount of cash it returns to its owners. And I can’t see that changing when it reports half-year numbers on 9 August.

Earlier this month, CEO Sir Nigel Wilson said the company’s year-to-date performance had been “in line with expectations“. He went on to add that Legal’s exposure to inflation was “minimal“. That suggests to me that the huge 7.6% dividend yield is safe for now.

Naturally, L&G can do all the right things and still see its share price dragged down by wider macro concerns. So there’s most definitely still risk here. However, an ageing UK population needing to save for retirement should be a huge tailwind going forward.

With a price-to-earnings (P/E) ratio of eight, the business looks very well priced to me.

Taylor Wimpey

At face value, housebuilders continue to look like a great source of dividends for investors. The £4bn-cap Taylor Wimpey (LSE: TW) is just one example. As things stand, analysts have the business yielding a monster 8%.

Like Legal & General, this income stock isn’t expensive to acquire either. I can pick up a slice of the company for just six times forecast earnings.

So what’s the catch? Well, there’s always the potential for the housing market to temporarily cool as a result of a (nailed-on?) recession impacting buyer affordability. This could feasibly disrupt Taylor Wimpey’s earnings and, consequently, its ability to pay out cash to its investors.

Even so, I can’t help but think a lot of this is factored in. Taylor Wimpey shares have fallen almost a third in value already in 2022.

So long as I spread my money around other income stocks, I’d be happy buying before the end of this month.

Plus 500

For that extra bit of diversification just mentioned, online trading platform Plus 500 (LSE: PLUS) also appeals.

In sharp contrast to Taylor Wimpey, Plus’s share price has been in good form recently. I doubt few investors will complain about a 16% rise in the company’s value, considering the carnage seen elsewhere.

Despite this positive momentum, the shares are still available for seven times earnings. That’s an appealing price relative to the UK market as a whole. Then again, it’s pretty average for companies in this line of work. One reason for this is that trading platforms are subject to ongoing scrutiny by regulators and sudden changes in legislation can hit earnings hard.

Still, a near-5% dividend yield, as I type, should be covered almost three times by expected profit. And while a return to the crazy days of lockdown-fuelled trading looks unlikely, cashed-up Plus 500 stands to benefit from more traders taking positions as the hope of an economic recovery gathers pace.

Half-year numbers are due on 15 August.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Airtel Africa 

What it does: Airtel Africa provides telecommunications and mobile money services in sub-Saharan Africa. 

By Royston Wild. Demand for telecoms services remains largely unchanged during all points of the economic cycle. Therefore, it’s my belief that Airtel Africa (LSE: AAF) could be a top growth stock for June as inflation rises and recessionary risks grow.

City analysts think Airtel’s earnings will rise 12% in the current financial year (to March 2023). They think profits growth will accelerate to 16% next year too. 

And so at today’s prices, the FTSE 100 share trades on a bargain-basement forward price-to-earnings (P/E) ratio of 8.4 times. 

I don’t just think Airtel’s a great buy for these uncertain times, though. Its focus on the fast-growing markets of Africa provides it with exceptional long-term revenue opportunities. Product penetration remains low across both the telecoms and financial services industries in its markets. Meanwhile, personal wealth levels are rocketing and population levels are rising strongly too. 

Pre-tax profits at Airtel leapt 75.6% in the financial year to March, the latest financials this month showed. These came in at a forecast-beating $1.2bn. I expect the Footsie business to continue impressing as its customer base balloons. 

Royston Wild does not own shares in Airtel Africa. 

Rolls-Royce

What it does: Rolls-Royce is a multinational civil aerospace, defence, and power systems company based in the UK.

By Dylan Hood: The Rolls-Royce (LSE:RR) share price has struggled ever since the pandemic first hit. However, the firm recently announced a trading update that contained some encouraging metrics. For FY2021, gross margins increased 23.4% compared to FY2020, leaving the company profitable for the first time since the pandemic’s onset over two years ago.

The firm is also making encouraging steps in its plan to rebuild its balance sheet, and has committed to achieving positive free cash flow by Q3 of 2022.

Investors have already been reacting positively to this news, with the price of Rolls-Royce shares climbing over 6% throughout May. While still under the £1 mark, I believe now could be a great time to open a position in my portfolio for future growth.

Dylan Hood does not own shares in Rolls-Royce.

Softcat

What it does: Softcat provides IT infrastructure solutions. Its areas of expertise include cloud computing, data, and cybersecurity.

By Edward Sheldon, CFA. Softcat (LSE: SCT) shares have experienced a significant pullback since September 2021 and I think this has presented an attractive buying opportunity.

A recent trading update showed that the tech company still has plenty of momentum. Indeed, the group advised that for the quarter ended 30 April 2022, it generated double-digit year-on-year growth in revenue, gross profit, and operating profit. It added that it now expects operating profit for the full year to be “slightly ahead” of its previous expectations.

Meanwhile, after the recent pullback, the stock’s valuation now seems quite reasonable. At present, the forward-looking P/E ratio here is about 27, which is not high in my view, given the company’s track record, growth potential, high level of profitability, and strong balance sheet.

Of course, if future growth is disappointing, the stock could underperform. All things considered, however, I like SCT’s long-term risk/reward profile.

Edward Sheldon owns shares in Softcat.

Ceres Power

What it does: The Sussex-headquartered firm is a world leader in metal-supported solid oxide fuel cell technology.

By Dr. James Fox. The hydrogen industry has enormous potential and that’s why I’m keeping a close eye on Ceres Power (LSE:CWR).

The UK-based fuel cell developer is yet to turn a profit. However, revenue is growing. Ceres reported a 44% increase in revenue and other operating income in 2021, reaching £31.7m.

As such, it currently has a price-to-sales revenue of around 40. That’s not cheap, but equally this also reflects the sector’s potential.

Ceres licences its energy technology to individual manufacturers, reducing costs relating to the building of manufacturing facilities. It also has lucrative partnerships with Bosch and Doosan.

Doosan is preparing for a soft launch of its 10kW SOFC product this year and will open a 79,200sq metre plant in 2024. With production being scaled up, 2022 could be a transformative year for the firm.

And with the share price falling over the past 12 months, it looks like a good time to add this stock to my portfolio. 

James Fox does not own shares in Ceres Power.

Petrofac

What it does: Petrofac designs, builds, manages and maintains oil, gas, and renewable infrastructure internationally. 

By Michelle Freeman. The recent windfall tax announcement may have made headlines for the oil & gas giants like BP and Shell, but it also created an instant demand for oil & gas infrastructure services. 

Why? Because the ability to offset investment spend against the new levy means that right now, plenty of UK-based projects will have been given a huge business case boost.  

But getting the go-ahead is only part of the battle. They’ll also need to be able to spend the money – and that’s going to lead to a spike in demand for the next few years at least. 

Petrofac (LSE:PFC) is one of a few companies that are well positioned to benefit from this upturn – alongside the wider trend globally as infrastructure spend returns with the high oil and gas prices. 

The best part for me, though: it’s not a one-trick pony, having also diversified nicely with its complementary renewables infrastructure arm. Win-win! 

Michelle Freeman does not own shares in Petrofac.

Howden Joinery Group

What it does: Howden Joinery is the UK’s largest vertically integrated trade kitchen supplier within the home improvement industry.

By Zaven Boyrazian. Renovating or constructing new kitchens may not sound like a lucrative investment opportunity. Yet Howden Joinery (LSE:HWDN) seems to disprove that. Looking at its latest trading update, the firm delivered an impressive 21.8% revenue growth – almost twice what it’s historically achieved. And that’s during its low season.

With its peak trading period just around the corner, the stock looks primed for a bounce-back after its recent tumble in the general market turmoil. There are valid fears of a slowdown risk due to rising inflation and a consumer spending crunch. However, given management continues to pursue its expansion plans in the UK and France, there appears to be a high degree of internal confidence that I like to see.

From what I can see, Howden Joinery is delivering its fastest growth in years, yet its share price is trading near a 52-week low. That, to me, looks like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Howden Joinery Group.

Hikma Pharmaceuticals 

What it does: Hikma develops, manufactures and markets a wide range of high-quality generic, branded and in-licensed pharmaceutical products. 

By G A Chester. Hikma Pharmaceuticals (LSE: HIK) has been out of favour for a while. Its shares are down around 30% over the last 12 months. 

The latest knock to market sentiment came in May. Hikma downgraded its guidance on the expected performance of its generics division in 2022. 

Management’s previous guidance was for revenue growth of 8%-10% over 2021’s revenue of $820m and an operating margin of 24%-25%.The new guidance lowered revenue to $710m-$750m and the operating margin to around 20%. 

The reason was a change in expectations of the launch timing of a generic medicine, shifting its revenue and profit contribution from the second half of 2022 to the first half of 2023. 

I don’t think this damages Hikma’s long-term growth story. The recent resignation of chief executive Siggi Olafsson — to pursue other opportunities — adds further uncertainty. But I reckon the weak share price represents a great opportunity for me. 

G A Chester does not own shares in Hikma Pharmaceuticals 

Greencore

What it does: FTSE 250 firm Greencore supplies convenience foods to retailers and food-to-go outlets all over the UK.

By Roland Head. Convenience food specialist Greencore (LSE: GNC) is bouncing back strongly from the pandemic. The firm reported sales up 34% to £771m during the half year to 25 March, thanks to “strong growth in food to go”.

I think the company’s growth is set to continue. City forecasts suggest Greencore’s pre-tax profit will hit £63.5m in the 2022 financial year and £80.6m next year.

The business is expanding beyond its historic strength in sandwiches to offer foods such as salads, sushi, ready meals and soups and sauces. Over time, I think this strategy is likely to support steady long-term growth.

Of course, larger retailers such as supermarkets are tough customers. They’re likely to keep pressure on Greencore’s prices and margins.

Today, Greencore shares trade on 12 times 2022 forecast earnings, falling to a forecast P/E of nine for 2023. That looks good value to me.

Roland Head does not own shares in Greencore.

Plus500 

What it does: Plus500 provides online trading services in Contracts for Difference (CFDs) across a range of asset classes.

By Charlie Carman. Benefitting from the rise in retail trading activity over the pandemic, the Plus500 (LSE: PLUS) share price has soared nearly 90% since the start of the UK’s first lockdown in March 2020.

The FTSE 250 fintech company’s latest quarterly results revealed impressive 33% year-on-year increases in revenue and EBITDA. Admittedly, Plus500 experienced a 35% decline in active customers compared to Q1, 2021. However, average revenue per user rocketed by 104%, which sufficiently offsets any potential concerns for me.

Plus500 continues to expand its global operations. The Israel-based business recently obtained a new licence in Estonia, improving its core product offering in European markets. In addition, its acquisition of EZ Invest Securities signalled an entry into the substantial Japanese retail trading market.

It seems elevated stock market volatility is here to stay for the time being. I believe Plus500 shares should perform well in this macroeconomic environment. I’d buy in June.

Charlie Carman does not own shares in Plus500. 

Dr. Martens

What it does: Dr. Martens is a luxury brand that sells footwear. Its boots are a cultural staple and its best selling item.

By John Choong – With stagnating retail sales data over the last quarter, I was originally bearish about Dr. Martens (LSE: DOCS)’ prospects. However, its stellar FY 2022 results blew my expectations out of the water. As a result, its share price surged by 18%.

Being a luxury brand, Dr. Martens has managed to pass its costs onto customers without negatively impacting its top and bottom lines. In fact, its profit margins saw an increase to 19.9% for the year, along with strong sales figures. This has pushed its free cash flow in the right direction too.

Additionally, management expects a strong FY23, citing “huge headroom for growth in key markets”, as well as a strong wholesale order book with fixed factory prices. The latter allows the firm to hedge against inflationary pressures, which is crucial given the macroeconomic environment. 

Therefore, I’m optimistic about the future of the company, and will be looking to buy shares in the near future.

John Choong has no position in Dr. Martens

Wizz Air

What it does: Wizz Air is a Hungary-based airline, specialising in the operation of short-haul flights around Europe, North Africa, and the Middle East.

By Andrew Woods. The improvement in the firm’s passenger numbers in recent months is quite staggering. For May, Wizz Air (LSE:WIZZ) flew 4.1m people, with a load factor of 84.2%. This was up from 3.6m and 83.4% in April. These passenger figures for May and April also equate to 390% and 542% increases, compared to the same periods last year.

As pandemic travel restrictions are relaxed, the airline is expecting a very busy summer. It has been recruiting cabin crew at pace to try and keep up with demand, but many flights have already been cancelled. This disruption could subside once the business hires more employees.

Wizz Air recently signed a memorandum of understanding with the Saudi Arabian government to explore the potential development of routes throughout the country. This would greatly increase the company’s presence in the Middle East.

In addition, a cash balance of €1.3bn suggests that the firm is in decent financial shape and well positioned for returning to higher capacity in the coming months.

Andrew Woods does not own shares in Wizz Air.

Bargain #1: Plus500

The first company is Plus500 (LSE:PLUS), an online trading platform. It currently trades at 1,577p. It has trailing and forward P/E ratios of 6.05 and 7.44, respectively.

These ratios are found by dividing the share price by earnings, or forecast earnings in the case of forward P/E ratios. They indicate if a business is under- or overvalued.

By comparing these ratios with a major competitor, CMC Markets, it appears that Plus500 could be a bargain at current levels. 

CMC has higher trailing and forward P/E ratios of 8.38 and 11.05, which indicates that Plus500 may be undervalued.

Beyond valuation metrics, Plus500 is enjoying favourable trading conditions. It has benefited from recent market volatility and expects its 2022 revenue and underlying earnings to be “significantly ahead” of expectations.

What’s more, for the three months to 31 March, its income increased by 68% and it also recently announced a $50m share buyback scheme. 

In essence, this share buyback scheme is simply a way for the company to return cash to shareholders and an indication that the business is healthy.

However, it is possible that the firm may be unable to maintain its strong recent results if issues causing market volatility, like the pandemic and the war in Ukraine, come to an end. 

Bargain #2: Jupiter Fund Management

The second firm is Jupiter Fund Management (LSE:JUP), an asset manager. It has forward and trailing P/E ratios of 6.3 and 9.54. These are lower than a competitor in the asset management industry, Ashmore. 

Ashmore, an emerging-markets-focused asset manager, has higher forward and trailing P/E ratios of 7.78 and 10.96. Like Plus500, this is an indication that Jupiter may be undervalued at current levels. At the time of writing, it’s trading at 175.5p.

The company has also demonstrated resilience, bouncing back from a difficult pandemic period. In 2020, for instance, profit before tax fell by £20m to £132m. The following year, however, it posted a pre-tax profit of £183m. 

Over 2021, the business also increased assets under management by 3%. This was positive news, given that Ashmore’s assets under management declined during that time.

However, Jupiter still had a net outflow of £3.8bn. Although this was down from £4bn in 2020, it still means that client money is leaving this asset manager. 

Overall, I feel both of these companies, Plus500 and Jupiter Fund Management, provide exciting opportunities to add undervalued stocks to my long-term portfolio. By getting a bargain, I can better position myself for growth over an extended period of time. I will be buying shares in both businesses soon.  

There are three companies that really stand out to me as being undervalued growth stocks right now. I would add all of them to my portfolio. 

FTSE 250 shares to buy

The first company on my list is the food group Premier Foods (LSE: PFD). At the time of writing, the stock is trading at a forward price-to-earnings (P/E) multiple of 8.3. However, analysts think the business will report earnings growth of around 17% in 2022. On that basis, I think the stock is undervalued. 

Some challenges it could face going forward include higher ingredients costs. These could put pressure on the company’s profit margins and slow growth.

Still, after around a decade of restructuring its balance sheet, cutting costs and expanding into new markets, I think the establishment has tremendous potential over the following 10 years as it embarks on its next stage of growth.

Management is investing heavily in marketing and infrastructure to help expand its footprint and reach new consumers. This is not reflected in the company’s current valuation. 

Growing in a niche

Financial services group Close Brothers (LSE: CBG) provides lending and wealth management services to a select group of customers.

It has a strong reputation with its clients, which has helped it grow steadily over the past five years. Revenues have increased at a compound annual rate of 7% per annum since 2016. Going forward, the company is looking to capitalise on this. It should also benefit from rising interest rates.

That said, the business is exposed to the UK economic environment. Therefore, if the economy slows substantially, revenues may come under pressure. 

Despite this risk, I think the stock looks undervalued compared to the group’s potential and niche operating model. The shares are selling a forward P/E of 8.7 and offer a dividend yield of 5.8%. Once again, I think this valuation undervalues the company’s competitive strengths and growth potential. 

Trading growth

Financial services group Plus500 (LSE: PLUS) specialises in offering trading services to retail clients. It should benefit from the current stock market volatility as it takes a tiny slice of each trade.

Despite its competitive advantages and position in the market, shares in the company are selling at a forward P/E of just 8.1. I think this significantly undervalues the FTSE 250 retail trading giant.

The stock also offers a dividend yield of 4.9% and management has been returning cash to investors by repurchasing shares over the past couple of years. 

Some of the main challenges the company may encounter going forward include regulatory risks and competition. The market is highly competitive, and complying with regulatory requirements can be expensive. 

Even after considering these challenges, I think the stock looks incredibly undervalued.

• Both of these FTSE 250 businesses demonstrate strong and consistent growth in revenue and profits
• Tate & Lyle will pay a special dividend after the imminent sale of its Americas primary products business
• Plus500 is launching a $55m share buyback scheme 

The FTSE 250 is an index full of exciting companies with strong growth prospects. I think I’ve found two firms that could perform as part of a portfolio geared up for the long term. While Tate & Lyle (LSE: TATE) has a record of results indicating constant growth, PLUS500 (LSE: PLUS) has just confirmed a share buyback scheme. Why should I add these two businesses to my portfolio? Let’s take a closer look. 

A food and beverage heavyweight

Tate & Lyle, a supplier of ingredients to the food and beverage industry, has delivered growth over the past five fiscal years. Revenue has grown — albeit only slightly — from £2.7bn to £2.8bn, and while this is far from heart-stopping, it is remarkably consistent.

What’s more, the firm is dependable regarding profitability too. Over the same period, profits before tax rose from £233m to £283m. Again, this is very consistent. Earnings per share (EPS) have also grown, boasting a compounding annual growth rate of 2.6%. These steady gains are exactly what I’m looking for in my long-term portfolio.

In a recent trading update for the three months to 31 December 2021, Tate & Lyle confirmed it was trading in line with expectations, but that the discontinued bulk sweetener and industrial starch segments were “significantly weaker”. In spite of this, revenue from continuing operations was up 18% compared to the same period of the previous year.

Furthermore, the firm will pay a special dividend of £500m after the imminent sale of stakes in its primary products business in the Americas. This is due in March 2022.      

A FTSE 250 trading platform

Plus500 is a trading platform that enables customers to trade contracts-for-difference (CFDs) on over 2,500 financial instruments. Company revenue increased over 64% to $718m between calendar years 2017 and 2021. During this period, profits have also grown over 50%.

In the firm’s preliminary results, for the year to the 31 December 2021, active customers fell 6%. Furthermore, revenue was down 18% year-on-year. This is actually indicative of the unprecedented growth the company enjoyed during the pandemic and on a two-year basis, revenue was still up 103%. 

Furthermore, PLUS500 announced a new share buyback scheme of $55m. In essence, this means the business is repurchasing some of its stock. This is a way for the company to return cash to shareholders. I view this development with some optimism, because it suggests the firm is in a strong financial position. 

Both of these companies display strong growth in their results and could be great additions to my portfolio. With a view to holding for the long term, I am encouraged by the special dividend and share buyback schemes. I will be buying shares in both firms without delay.

Plus500

There are two online trading stocks that catch my eye when looking at the FTSE 250. The first, Plus500 (LSE: PLUS), is an Israel-based trading company specialising in Contracts for Difference (CFDs). This platform enables trading of CFDs on more than 2,200 underlying assets. It also has a presence in 50 countries. During the pandemic, it registered impressive results. In the year to the end of December 2020, revenue increased by 146%. This was significantly higher than previous results. Furthermore, these numbers far surpassed expectations. This resulted in a dividend yield that year of 7% and a share buyback scheme that targeted $25m worth of shares. With a price-to-earnings (P/E) ratio of 5.8, this stock has significant upside potential and may be considered a value stock. 

Its financial results took a turn for the worse in summer 2021 when the wider market stabilised. The market volatility that had boosted Plus500 had decreased as much of the world was released from pandemic lockdowns. And the share price dropped after it released weaker results

In Q3, the share price fell 12.8% from 1,470p to 1,282p. Yet that fall came in response to revenue dropping by only 2%. Such bearish sentiment after this revenue hiccup leads me to believe that expectations for Plus500 are too high. Nonetheless, I would be concerned with the prospect of lower market volatility in the future, despite my generally positive view of the firm. 

CMC Markets

In a similar vein, CMC Markets (LSE: CMCX) performed well over the course of the pandemic. The UK-based online trading platform specialises in CFDs and spread-betting. Its full-year to March 2021 saw pre-tax profit up 127%. Furthermore, earnings per share (EPS) were up 104%. Like Plus500, CMC Markets benefited from increased market volatility. With a P/E ratio of just 7.9, I’d be forgiven for seeing this stock as a bargain at its current share price.

Yet as markets became more subdued last year, news coming from CMC Markets was less encouraging. In September 2021, the company even issued a profit warning. Its income guidance for 2022 was cut significantly. The company had originally forecast income of £330m. But this was reduced to £280m and reflected the change in market conditions as we began to emerge from the pandemic.

CMC Markets also confirmed in November 2021 that it may split its leveraged and non-leveraged segments. The split would divide its investment platform from the CFDs, the latter usually generating more revenue when market volatility is greater.

Overall, both Plus500 and CMC Markets are strong companies and have performed well in recent times. Yet I will be buying neither for 2022 at current prices because I still think expectations are artificially high due to their past performances during the pandemic. However, I may buy shares in these two businesses if expectations fall, because I would expect the share price to follow suit.  

Results round-up

According to the latest update, the trading platform recorded revenue of $718m in the period. Almost $702m of this came directly from subscription and customer trading fees. This points to a high trading volume last year, driven by a steady increase in daily users.

The number of active customers was ahead of pre-pandemic levels throughout 2021, the firm acquiring approximately 196,150 new users. The fintech company has low operational costs that boosted earnings before interest, taxes, and amortisation (EBITA) to $387m.

The FTSE 250 share also boasts of a high dividend yield of 7.3%. Another encouraging sign for future dividends is that its revenue grew at a compound annual growth rate (CAGR) of 32% a year over the past five years. And its current yield is covered 2.8 times by earnings, which is a positive.

The share buyback programme was updated recently and stood at $12.6m on 29 October. The programme is already under way and a $10.8m buyback has already been rolled out. The board has also hinted at the possibility of a new buyback after the current programme is completed. It’s important to note that buybacks have been a feature of Plus500’s shareholder-first approach since 2017.

The company has also diversified into crypto investments and offers over 2,000 financial investment instruments. It recently included sector indices as well.

Should I buy?

The last 24 months have brought in a lot of new traders. Forced to work from home, young investors switched on to investing in record numbers in the last two years. And the explosion in the popularity of cryptocurrencies is a huge boost for Plus500. High market volatility is good for the business as customer trading activity increases. In the first few months of the pandemic between January and June 2020, revenue increased from $148m to $564m.

The new trading update means the stock is trading at a very cheap price-to-earnings (P/E) ratio of six times. And I think the higher volatility in the crypto market is a great asset for Plus500. It bolsters buying volume and the constant flip between fear and greed in the crypto space means more investors are likely to try and buy a dip or ride a high.

But the business operates in an extremely crowded space with more platforms with feature-rich packages available on the market every day. And several countries are considering regulating the crypto trade, which could cut into revenue. The company is also investing heavily in marketing and R&D and has announced a $50m, incremental R&D investment for three years. But I think investor interest could wane if future revenue is affected by huge R&D spending.

However, the firm has a very low-cost operation, a good dividend history and financial performance to back it up. I am watching this FTSE 250 share closely and would consider adding it to my portfolio in 2022.

It means I am looking for corporations paying attractive dividends that they can afford without having to take on debt or skimp on reinvesting back into the business. 

With that in mind, here are three passive income shares I would buy today, all of which yield more than 7%. 

Trading income 

The first company is the financial services group Plus500 (LSE: PLUS). This firm generates revenue from traders who place deals on its platforms. By taking a tiny slice off each trade, the enterprise is able to generate significant profits and hefty profit margins. As part of this model, profits tend to rise during periods of market volatility and fall when traders are sitting on their hands. 

This means it has the capacity to produce significant dividends for investors. At the time of writing, the stock offers a dividend yield of 7%, although it could vary going forward. Indeed, the company has a track record of returning more cash to investors when profits are rising and less during periods of declining sales. 

Some challenges the group may face include competition and regulations. These could hurt its profit margins and lead to reduced shareholder returns. 

Passive income diversification 

Henderson Far East Income (LSE: HFEL) presents a way for me to build exposure to a diverse portfolio of income investments across Asia. 

I think this strategy makes a lot of sense for my portfolio, as it will help me build exposure to different regions of the world and diverse businesses.

At the time of writing, the trust offers investors a dividend yield of 7.9%. This is backed up by income from its top holdings, including Bank of China, Samsung Electronics and Taiwan Semiconductor. 

One significant benefit of dividend investing with income trusts is they can manage their payouts. Trusts can hold back a quarter of their income every year to build a revenue reserve. These companies can then use this to cover their dividends to investors if the holdings in the portfolio cut their payouts. As a result, investors are insulated from individual business actions to a certain degree. 

A downside of this approach is that funds can charge high management fees. These can eat away at returns in the long run.

Growing business 

Jupiter Fund Management (LSE: JUP) is my final passive income buy. Over the past five years, this firm has built a niche in the fund management industry. Thanks to its strong reputation with customers, assets under management recently hit a record high. 

As assets under management have expanded, so have management fees. This generates a steady stream of income for the company, which it can then return to investors. At the time of writing, the stock offers a dividend yield of 7%. There is room for growth in the years ahead as assets under management continue to build. 

Some risks that could hold back growth include completion from larger peers. A price war in the fund management sector could drive down Jupiter’s profits. An increased regulatory burden may also impact the company’s profit margins.