It should come as no surprise that companies like Metro Bank and Kier Group are among the most despised stocks on the market right now.
The former has lost 95% of its value in just 18 months due to a major accounting error, savers rushing to withdraw their cash and a poorly received (and subsequently pulled) bond issue. To say that the challenger bank finds itself challenged is putting it lightly.
Kier’s recent performance is equally shocking. Over the last 12 months, the share price has fallen 86% for many of the same reasons: an emergency cash call, an accounting error, and a profit warning. Restructuring costs remain a drag and Brexit continues to cast a shadow over the property, residential, construction and services firm.
With things looking so bleak, it’s natural that some should try to find a way of profiting. As I type, both Metro and Kier rank among the most shorted stocks on the London Stock Exchange. In other words, investors are making sizeable bets that the share prices of both are likely to fall further.
Regardless of what you feel about the ethics of short-selling, it can be very lucrative. Many of those that wagered against market casualties like Carillion and Debenhams made a lot of cash in the process. That’s not to say it isn’t high-risk — losses are technically infinite if they get their calls wrong and share prices rise.
There is, however, another business that’s more hated than either Metro and Kier.
The silver medal goes to…
With 9.7% of its stock currently being shorted, FTSE 250 member and oil services provider Wood Group (LSE: WG) ranks second in the leaderboard and above both Kier and Metro. Worryingly, the only company with more short positions hanging over it is Thomas Cook.
At first glance, this all seems a bit harsh, especially when you take the company’s recent interim results into account. Back in August, the Aberdeen-based business revealed a $13m profit over the first six months of 2019 compared to a $52m loss over the same period last year (despite logging a 2.6% decline in revenue to $4.8bn). Wood also maintained its outlook for the full year and stated that it was “well-positioned for growth across the energy and built environment markets” beyond this.
Unfortunately, the market just doesn’t seem interested, with the fall in Wood’s share price over the last year showing no signs of abating just yet. Arguably the biggest concern is the amount of debt the company still carries.
Net debt stood at $1.77bn by the end of June, 14% higher than at the same point last year. And while the sale of its nuclear business for $305m is expected to reduce leverage once the deal is completed in Q1 2020, it would appear some also have concerns about Wood’s limited exposure to the recovering offshore and liquid natural gas markets compared to rivals.
A price-to-earnings (P/E) ratio of just over eight might look cheap, but there’s certainly an argument for saying that even this valuation might come under review if the health of the global economy were to deteriorate. At 8.3%, the yield is one of the highest in the FTSE 250 but dividends are, somewhat ominously, barely growing.
The shorters have been wrong in the past — Ocado being a perfect example. Could they have got Wood Group wrong as well?
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.
Paul Summers 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.