One stock I’d snap up and one I’d avoid in this market turmoil

This is why I view the shares of these two growing firms differently in this wild market.

| 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.

There’s a lot to like about Tristel (LSE: TSTL), the manufacturer of infection prevention and contamination control products. And the full-year results this week show that the business has been doing well.

Revenue increased 10% compared to last year, and adjusted earnings per share rose 10% after removing the effect of share-based payments. However, with those payments put back in, the basic earnings-per-share figure actually fell by 5%. Nevertheless, the directors pushed up the ordinary total dividend for the year by almost 14%, although there was no repeat of last year’s special dividend.

Aiming for expansion in America

Revenue from overseas accounted for 51% of the total, up from 47% last year, and I reckon one of the drivers of what’s been a high-looking valuation has been speculation about the firm’s prospects in North America. Chief executive Paul Swinney said in the report: “Our plans to enter the United States market remain on track and continue to progress well.”

However, he also told us that although the driver of revenue growth was the firm’s overseas activity, overall, “sales growth was at the lower end of our target range.” He also told us the uncertainties about the Brexit process have prompted the company to build up its inventory of all component parts and finished products. Tristel also advised its customers in Europe to increase their stock holdings over the coming months “in preparation for possible disruption to the supply chain.”

Despite the warnings, the directors believe Tristel will be able to sell its disinfectants in Europe, whatever the outcome of the Brexit negotiation. But Swinney is certain that turbulence in the year ahead will disrupt the normal predictable pattern of trade. Meanwhile, the company is pursuing the relevant regulatory approvals to trade in the US, and the longer-term outlook is “very positive.”

There was enough in the report to knock the froth off the valuation, though, and the share price is down almost 25% since its early October peak – and plummeting. Prior to the fall, we were looking at a racy forward price-to-earnings (P/E) ratio in the mid-thirties. Today, in this volatile market, I’d avoid shares in Tristel, and reassess the opportunity when the stock settles down at its new level.

Powering ahead

However, I don’t have such qualms about fast-growing e-banking and international payments firm FairFX Group (LSE: FFX). In September’s half-year results report, the firm revealed a 97% increase in revenue, to £12m, compared to the equivalent period last year. Adjusted profit, before tax, rose to £2.6m, from £0.2m the year before.

Chief executive Ian Strafford-Taylor said in the report he expects operationally-geared revenue to “increasingly flow through to profit” in the second half of the year. Despite weak sterling, Brexit, and fewer people taking holidays, he’s confident that full-year results will be “in line with expectations.” 

Meanwhile, City analysts have pencilled in earnings of more than 9p per share for 2019, which puts the firm on a forward P/E ratio of around 14 at today’s share price close to 130p. I think the outlook for growth is strong and see any weakness in the share price now as an opportunity for me to buy.

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 owns shares in FairFX Group but not in Tristel. 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

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Forget Lloyds’ cheap share price! I’d rather consider this FTSE 100 bargain share

Lloyds' share price might appear too cheap to miss at first glance. But this FTSE-listed share could be a better…

Read more »

Market Movers

Down 6% today, is the BT share price gearing up for a larger fall?

Jon Smith points out why the BT share price has tumbled today, but flags up why the reasoning behind the…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

This FTSE 100 stock is down 25% from its 52-week high. Should I buy?

Analysts think the price-to-earnings ratio of this FTSE 100 stock could fall by half in the next two years if…

Read more »

Investing Articles

£10,000 invested in Nvidia stock just two weeks ago is already worth…

Nvidia stock's been making big losses and big gains so far in 2025, at least on paper. But long-term valuation…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Here’s why Lloyds shares have dipped sharply

Lloyds shares got a boost recently when the Treasury petitoned the Supreme Court to go easy on the car loan…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

A £10,000 investment in BAE Systems shares 5 years ago is now worth…

BAE Systems' shares have lifted off since the start of the decade. But can the FTSE 100 defence giant continue…

Read more »

Dividend Shares

£8,000 invested in high-yield dividend stocks could make this amount of passive income

Jon Smith explains how dividend shares with yields in excess of 8% can be used carefully in order to build…

Read more »

Investing Articles

£5,000 invested in Tesco shares 2 years ago is now worth…

Over the last two years, Tesco shares have provided investors with gains of around 30% per year when dividends are…

Read more »