The Motley Fool

Is this hated FTSE 250 stock actually a brilliant buy for July?

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.

question marks written reminders tickets
Image source: Getty Images

Is it about time investors took another look at Petra Diamonds (LSE: PDL)? The diamond digger’s share price continues to sink and sink (and sink). Down 65% over the past 12 months alone, this FTSE 250 share is worth around a fifth of what it was five years ago.

For some braver share pickers, Petra Diamonds could be seen as an attractive punt at current prices. Boasting a forward P/E ratio of just 3.9 times, it could be considered a snip in relation to its predicted near-term earnings trajectory, as does a corresponding PEG reading of 0.1.

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!

But what on Earth could prompt anyone to buy into the business right now? The promise of rebounding diamond prices? Of course.

Near-term worries rise

But Petra has found itself in the doghouse with market makers, in part because of wretched diamond demand in recent years. Soft stones demand in China and high inventories of polished items are battering the sector and, according to the firm’s most recent financials, revenues sank a lacklustre 7% in the three months to March, to $135.2m. That’s a reversal driven by a 6% slump in volumes to 1.06m carats.

Have conditions picked up since then? Not if trading at Anglo American’s De Beers unit is anything to go by. The firm advised this week sales in its fifth cycle had plummeted to $390m, from $591m a year earlier.

It’s unlikely prices will improve in the near term either, given the impact US-Chinese trade wars have had on the already-slowing economy in the Far East — battles which threaten to persist despite hopes of a breakthrough at this weekend’s G20 summit. And let’s not forget the prospect of a downswing in the solid North American market amid signs of growing economic stress there.

So what’s the score?

On the other hand, Petra and its peers could be considered attractive investments for patient investors amid hopes of recovering stones prices from the start of the next decade.  

Diamond market expert Paul Zimnisky recently told UBS that natural diamond production will slip 12% in the five years to 2022 as existing mine supply is depleted and old assets are shuttered, factors that could give prices a much-needed leg-up. He also noted diamond demand is growing while voicing doubts over the impact of the man-made segment on natural product demand too. In particular, he downplays the possible disruption that synthetic stones will cause in the luxury jewellery market.

So what should investors do? Take a ride with Petra in the hope of improving supply/demand values in the next few years? Certainly not, I would argue.

Whether or not an improvement in the diamond market’s fundamentals eventually materialises, the risks to the company remain formidable.

Reasons to be fearful? The prospect of fresh currency headwinds should the slowing global economy hit the South African Rand. More mining and shipment problems in South Africa and Tanzania. And, of course, an elevated net debt pile which still sat north of $550m as of March.

It’s quite likely that fresh financials slated for 22 July will release some fresh horrors, given recent newsflow. Thus the chances of additional share prices drops are high. For this reason, I think Petra remains best avoided and quite possibly remain so for the considerable future.

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

Royston Wild has no position in any of the 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.

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.