This unloved share’s fallen 50%+ in three months. Is it NOW time to buy?

This share has more than halved in value over the last three months. Is it now too cheap to ignore?

| 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.

I’ve long been warning how Lookers (LSE: LOOK) could prove to be a shocking investment trap. Though it brings me no pleasure to say it, the 56% share price drop the car dealership’s endured over the past three months alone has vindicated my pessimism.

I spoke recently about the prolonged decline in new car sales in the UK, an issue caused by increased uncertainty from consumers and businesses alike in light of the unresolved Brexit problem. But as recent data from the Society of Motor Traders and Manufacturers (SMMT) shows, this political fog isn’t the only headwind Lookers et al are being swept over by.

News of a 4.9% decline in total new vehicle sales in June was bad enough, worsening from the 4.6% annual drop recorded a month earlier. What the auto body said caused it “grave concern” though, was the sharp demand drop last month for low emission cars such as hybrids and hydrogen-powered units. Sales of these vehicles dropped for the first time in 26 months on what the SMMT described as a combination of “confusing policies and the premature removal of purchase incentives.”

Looking good? No way

It would take a braver man than me to plough into Lookers right now, even though at current prices it trades on a rock-bottom forward P/E ratio of 5.1 times and carries a monster 9.1% dividend yield.

The extent of the company’s problems were highlighted on Friday when it hacked its profits estimates for the half year down to £32m (versus profits of £43m a year earlier). And I reckon this is unlikely to be the last time Lookers reduces its forecasts given the scale of market deterioration.

A 4.6% decline in new vehicle sales during quarter two is bad enough, deteriorating from 2.4% in the prior three months. “Weaker demand and the resulting margin pressure” at its used-car division in the last quarter really compounds the retailer’s woes.

With the political and economic uncertainty that’s smacking car demand promising to persist long into the future, and Lookers also facing an FCA probe into its sales processes, there’s plenty of scope for the company’s share price to keep on sinking. I reckon it’s a stock that should be avoided at all costs.

A better buy

Those looking for solid dip buys would be better off examining Georgia Healthcare Group (LSE: GHG) instead, I believe. The business, which provides a range of healthcare services (like hospital care and drugs dispensing) in the fast-growing Eurasian nation, is experiencing some stupendous revenues growth right now.

According to its most recent quarterlies, sales expanded 13% in the period to April. I’m expecting the top line to keep impressing as Georgian economic growth balloons, and the group works (and spends) heavily to expand the quality and range of its operations. On Friday, for instance, it announced it would lease space to maternity care specialist the David Davarashvili Clinic at its Iashvili Hospital in Tbilisi, a significant boost to neonatal and paediatric services at the site.

Georgia Healthcare’s share price has fallen 12% over the past month, meaning it trades on a bargain-basement forward PEG ratio of 0.5 times. Given that City analysts expect the medical mammoth to keep delivering stunning double-digit annual earnings growth, I reckon it’s a great buy today.

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.

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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

6.9% dividend yield! 2 cheap stocks to consider for a £1,380 passive income

Looking for a market-beating passive income? These FTSE 100 and FTSE 250 dividend stocks could provide a healthy second income…

Read more »

Mature black couple enjoying shopping together in UK high street
Investing Articles

Potentially 34% undervalued, should I be watching the boohoo share price?

The boohoo share price has seen a rocky few years, but with signs that the economy is improving, could this…

Read more »

Investing Articles

Is the Amazon share price primed for a drop?

The Amazon share price has been on a tear for the last year, but can this trend continue? Gordon Best…

Read more »

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »