This share is down 10% today and looks cheap, but here’s what I’d buy instead

Read this if you are looking for an attractive investment in the small-cap arena.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the shares plunging 10% today on release of the half-year results report, Israel-based Tremor International (LSE: TRMR), which was formerly Taptica International (LSE: TAP), has a low-looking valuation. Is it too cheap to ignore?

The company earns its living as an online marketing specialist providing targeted advertising for brands through video and other channels – all that stuff we want to ad-block to stop it ruining our online days, I guess!

Cheap as chips

But the valuation really does look cheap. With the share price at 130p as I write, the forward-looking earnings multiple for 2020 sits close to just 3.5 – I think it’s fair to say that the company is out of favour with investors and has been for some time. It seems that the recent change of name from Taptica International hasn’t helped sentiment.

And that’s a big problem because investor sentiment is likely to work against any investment we make in the company despite its apparent fundamentals. One of the challenges is that investors seem to find it hard to trust firms based abroad in places such as Israel.

Yet, I think it’s wise to be cautious. At the end of 2018, the former chief executive resigned after allegations of fraud at the previous company he headed. There’s no suggestion that Tremor has done anything wrong, but at the very least we need to question the firm’s recruitment procedures.

Meanwhile, today’s report reveals to us a flat outcome on revenue compared to the equivalent period a year ago and a reduction in net cash inflow of just over 8%. But that outcome masks a decline in a major part of the business due to a balancing three-month contribution from RhythmOne, which the company acquired in April.

In fairness, the directors reckon Tremor is “well-positioned” to deliver a stronger second half. But this morning’s further plunge in the share price suggests investors have been voting with their feet. On balance, I’m inclined to be one of them because there are so many other opportunities available on the stock market, so why take on the uncertainty here?

Getting exposure to the small-cap sector

In theory, I like the idea of investing in companies with smaller market capitalisations because they have room to grow and are sometimes capable of delivering stunning returns to their shareholders. But there’s no doubt that the small-cap arena is also packed with risk and we should choose our stocks carefully.

However, sometimes it’s easier to get exposure to the small-cap universe of shares by investing in low-cost index tracker funds and I like the look of the Vanguard Global Small-Cap Index Fund – Accumulation. The fund aims for long-term growth of capital by tracking the performance of a market-capitalisation-weighted index of small-cap companies in developed countries around the world.

There are holdings of around 4,386 companies in the fund, which gives us comprehensive diversification, and the ongoing charge is low at just 0.38%. I think tracking the global small-cap index is a great way to get exposure to smaller firms within a portfolio and I’d rather buy into the fund than invest in Tremor International shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »