The Motley Fool

Should I buy this FTSE 250 turnaround after falling 30% in a year?

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.

Over the past six months, shares in Victoria (LSE: VCP) have lost nearly half of their value after a botched refinancing attempt.

At the beginning of November, the company announced that it was planning to issue €450m of high-yield bonds to refinance some of its existing bank facilities, used to fund a series of acquisitions over the past few years. 

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!

Investors wanted to know why management would want to refinance bank facilities with more expensive high-yield bonds. Rumours began to circulate that the only reason why the company would damage its finances in this way is because management had fallen out with banking partners, which could hint at further problems in the business.

U-turn 

As investors rushed for the hills, the company pulled this bond deal and executive chairman Geoff Wilding pinned the share price collapse primarily on unclear communications. Since then, the business has been in damage-control mode, trying to reassure investors that its balance sheet can support Victoria and the group does have the full support of its banking partners.

Half-year results from the company, which were published today, show net debt at 29 September of £342.7m, representing 3.09x earnings before interest tax depreciation and amortisation (EBITDA). That’s significantly above what I’d be comfortable investing in.

Usually, I overlook any companies with a net-debt-to-EBITDA ratio of more than 2x. The half-year report also says the firm may consider revisiting its bond issuance plan in future “if appropriate.

So overall, even though the city is expecting Victoria to report earnings per share (EPS) growth of 80% for the current financial year, leaving the stock trading on a relatively attractive PEG ratio of 0.6, I’m not buying because I’m worried about the high level of debt the company has taken on recently to fund acquisitions.

Low-cost dividend 

In my opinion, FTSE 250 building firm, Travis Perkins (LSE: TPK) seems to be a better buy. 

Unlike Victoria, this company isn’t struggling with a large pile of debt. Net gearing was just 17.4% at the end of the last financial period. On top of this, the stock is changing hands for a relatively undemanding 10.4 times forward earnings, and supports a dividend yield of 4.3%, which is comfortably covered 2.3 times by EPS.

Unfortunately, Travis Perkins has lost around a third of its value already in 2018. Investors, it seems, are concerned about the company’s exposure to the UK consumer and the domestic housing market, both of which would suffer significantly in any economic downturn. 

However, so far, group sales have remained robust with like-for-like sales increasing 4.1% during the third quarter. Obviously, at this point in time it’s impossible to tell how the company will fare over the next few years as Brexit unfolds. But I believe that the group’s strong position in the market, coupled with its portfolio of well-known brands, will help it weather any storm and come out the other side in a stronger position than many of its peers.

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

Rupert Hargreaves owns no 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.

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.