FTSE 100 chemicals’ producer Johnson Matthey (LSE: JMAT) saw a sharp plunge in share price last week on a weak earnings report. By the end of the week, the share price had fallen by more than 10% from where it began the week.
According to ace investor Warren Buffett, a good company in temporary trouble makes for a good investing bargain. Given JMAT’s solid stock price performance in the past, along with its strong industry position, I am now seriously wondering if this is exactly the kind of situation Buffett was talking about.
Results are a mixed bag
I took a closer look at the results, which showed that while there was indeed reason for some disappointment, it’s at least a glass-half-full scenario – certainly not one that’s fully empty!
It’s true that Johnson Matthey’s profits disappointed, with an 8% decline in profit before tax and a 13% fall in earnings per share. But it has shown revenue growth of a pretty fantastic 37%. Management is also quite optimistic about the rest of the year, saying that it expects to deliver a stronger second-half of 2019.
A sustained increase in revenues would be good news, considering that the number has been uneven in the past few years, even though the company has been consistently making a profit.
Large and diverse
There are also other positives to Johnson Matthey. I risk repeating myself, but it’s a point worth making yet again in the current context. JMAT operates in wide-spread markets, which serves to insulate it from the challenging macroeconomic conditions in the UK. Those conditions make the UK economy particularly vulnerable to a downslide right now.
My colleagues have also been pointing out that Johnson Matthey has an established position in the industry, which will inevitably hold it in good stead.
Underwhelming share price performance
Despite these positives, I’m on the fence as far as investing in this share is concerned. The past five years have seen a lot of share price ups and downs and although the trend line points moderately upwards, I think there are better performing FTSE 100 shares to consider right now. The JMAT share price has risen an underwhelming 4% on average over the past five years.
Compare this to another FTSE 100 share like the business services provider DCC, whose share price has doubled over that time, and who has shown good financial performance as well. Another one is Bunzl, which I talked about a month ago. This share too has seen price underperformance over the past year but over the last five years, it has given decent returns.
In light of these considerations, I’d like to keep JMAT on the radar for now, looking for any signs of consistently improved share performance. In the meantime, I’d invest in other shares.
