Sirius Minerals shares are down 30% in six months. Is it time to buy?

Shares in Sirius Minerals plc (LON: SXX) have had a dreadful run. Do I think a rebound is on the cards?

| 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.

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 Sirius Minerals (LSE: SXX) share price has had a disappointing run over the last six months, falling from just under 30p to around 20p today. That represents a fall of approximately 33%. Since early August, the shares are down nearly 50%.

Yet looking at the investment case for SXX, I’m really not surprised by the share price fall. Indeed, I’ve actually warned investors several times in the past about the dangers of investing in the stock, stating in September that it is a “risky investment.”

Jam tomorrow

There’s no doubt that Sirius offers an interesting story. Owning the world’s largest and highest-grade deposit of polyhalite – a key ingredient in fertiliser – the company has clearly captivated the imaginations of many UK investors. However, the problem with Sirius, in my view, is that it’s a classic ‘jam tomorrow’ type of stock. What I mean by this is that profits are still a long, long way off. That adds considerable risk for investors, as, without profits, there’s nothing to really support the share price. Recent news regarding a finance deal (or lack of) has hit the shares hard.

Even after the recent 30%+ share price fall, I’m not tempted to touch the stock. And one reason for this, on top of production and financing risks, is that short interest is quite high at the moment. According to, over 7% of the company’s shares are being shorted right now which essentially means that a number of hedge funds or sophisticated investors are betting that the stock will keep falling. As I’ve noted in the past, quite often, the shorters get it right. Just looked at what’s happened with highly-shorted stocks such as Carillion and Metro Bank in recent years.

With shorters targeting the stock, I’ll be continuing to steer clear of SXX shares for now.

Better growth stock

One growth stock I do hold in high regard is Gamma Communications (LSE: GAMA). Back in January, I listed the stock as one of my top small-cap stocks for 2019, and since then it has risen nearly 30% – a healthy gain. Over the last three years, it’s performed even better, rising over 120%.

Founded in 2001, Gamma company provides voice, data and mobile services for the business market, and its clients include Pret, British Heart Foundation, and Cathay Pacific. Unlike SXX, Gamma is a highly profitable company (ROE was 26% last year), and profits are rising at a prolific rate.

Just last week, the group released its full-year results for FY2018 and the numbers were excellent. Revenue was up 18% while adjusted EPS rose 31%. Cash generated by operations increased by an impressive 36%. Management also said that it is “positive about the outlook for the business in 2019 and beyond.

For FY2019, analysts are forecasting EPS of 35.6p per share, which at the current share price places Gamma on a forward P/E of 26.9. I think that’s a fair price to pay for this high-growth company.

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.

Edward Sheldon has no position in any shares 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

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 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 »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »