The Motley Fool

Is this value dividend stock a falling knife to catch after dropping 25% today?

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.

Replacement doors and windows group Safestyle UK (LSE: SFE) issued a big profit warning this morning, sending the shares down by almost 30% in the opening hour of trading.

It’s the group’s second profit warning in two months and looks serious to me.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

In an accompanying statement, Safestyle said that the group’s order intake has fallen faster than expected since July. As a result, management expects to see “a material impact on full year profits”.

Is there any good news?

However, there doesn’t seem to be any company-specific issues here. Safestyle is the market leader in its sector and has been highly profitable and cash generative over the last few years. It’s also worth noting that the company reported a net cash balance of £13.4m at the end of last year, with no debt. So it seems unlikely to experience financial distress.

The problem appears to be a reduction in consumer spending. According to the latest statistics from trade body FENSA, the company noted installations of replacement doors and windows fell by 18% in June and July, compared to last year.

As a result, full-year revenues are now expected to be flat on last year, while profits are expected to be significantly lower. This is a big setback, considering that analysts’ forecasts until today were showing profit growth of about 11% this year.

After today’s fall, I estimate that this stock trades on a P/E of perhaps 10. There was no word on the dividend in today’s news, but if it’s not cut it would offer a yield of 7%. However, I suspect the shares will get cheaper before they start to recover. I’d stay away for now.

Is this the next big profit warning?

Car dealership group Cambria Automobiles (LSE: CAMB) recently reported a 21.7% rise in underlying half-year profits. It appears to be well financed with strong free cash flow, and trades on a forecast P/E of just 7. So what’s the problem?

Cyclical stocks like this often look cheapest when they’re near the top of the market. These low P/E ratios are common when the profits are close to a peak, and the market is pricing in a downturn.

In my view, there are several reasons to be cautious about investing in car dealers. UK new car registrations fell by 2.4% during the first eight months of the year, and by 6.4% in August alone.

According to Cambria’s latest trading statement, the group’s own like-for-like new vehicle sales fell by a staggering 17.6% during the 11 months to 31 July. It seems clear to me that the market is weakening.

I believe that’s why most of the major car manufacturers have now rolled out scrappage and ‘deposit contribution’ offers. Essentially, these are just sales tools to encourage owners of older cars to trade up and buy a new car, rather than another used one. Their purpose is to boost volumes at the expense of lower profit margins.

Although car dealers make most of their profits on aftersales and used cars, if new car sales fall, the pipeline of future aftersales work will shrink. In my view, now is not the right time to put money into this sector, however cheap it might seem.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Cambria Automobiles. The Motley Fool UK has recommended Safestyle UK. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.