This FTSE 100 stock has crashed 40% this year, but could it be time to load up?

G A Chester looks at the investment case for the biggest faller in the FTSE 100 (INDEXFTSE:UKX) and an unloved smaller company with results out today.

| 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.

The share price of silver and gold-miner Fresnillo (LSE: FRES) is down 40% since the start of the year, making it the biggest faller in the FTSE 100. Meanwhile, small-cap internet marketing group XLMedia (LSE: XLM), which released its half-year results today, has seen an even bigger decline, it’s shares being off almost 50%. Is this a great opportunity to buy a slice of these two businesses?

Multiple issues

XLMedia’s main assets are websites that publish content relating to online gaming. Revenue comes from operators who pay a commission for the leads the websites generate. The major cause of the decline in the share price was a profit warning in June. The price plummeted 30% on the day.

Today’s results were peppered with the numerous issues that hurt XLMedia’s first-half performance. Many related to regulation, including the closure of the Australian online casino market, regulatory uncertainty in some European markets and more stringent gambling advertising regulations in the UK. The group also saw a reduction in activity, due to factors including spamming and other attacks on its websites, as well as technical issues. It also saw lower levels of mobile traffic within the gaming segment.

Not cheap enough

XLMedia’s revenue and profit fell by a low-teens percentage in the six months to June and the company said it’s on track to meet (previously-revised-down) profit expectations for the full-year. It spent over $45m on a series of acquisitions in the first half and expects to accelerate this activity, with a particular focus on diversifying into the personal finance sector.

Management is upbeat about the outlook for the company, but the shares are trading 3% down on the day at 103p, as I’m writing. The valuation is 10 times forecast earnings and the forward dividend yield is 4.3% (if we assume today’s 25% cut in the interim is carried through to the full-year). Given the multiple issues and uncertainties, I don’t think the valuation is cheap enough, so this is a stock I’m avoiding at the current price.

Plenty cheap enough

Fresnillo is a stock I’ve tipped a number of times at higher prices, most recently at what was then a two-year low of 920p. The shares are currently trading at around 860p, having bounced from a recent sub-800p low. This has very much been a case of, “just because you think a stock is cheap, doesn’t mean it can’t get cheaper.”

Fresnillo revised down its silver production guidance earlier this year but this was balanced by raised guidance on gold production. Persistent weakness in gold and silver prices has been behind the steady decline in Fresnillo’s shares. With plenty of jitters-inducing stuff going on in the world, including Donald Trump’s escalating trade war with China, I’ve been surprised by the weakness of gold and silver. It seems the dollar has been the safe haven of choice during the period. Meanwhile, Fresnillo’s share price has languished — in marked contrast to the near 2,000p it reached following the UK’s Brexit vote.

However, I continue to see the miner as offering good value as both a hedge against short-term shocks and as a long-term investment. A rating of 18 times earnings and a prospective dividend yield of 3% make it plenty cheap enough by historical standards, so it remains a ‘buy’ in my book.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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 »