The Motley Fool

Why I’d buy this winning small-cap stock after it crashed 10%

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.

Business people shaking hands
Image source: Getty Images

After a profit warning Thursday, shares in Robert Walters (LSE: RWA) lost 13.7% at one point during morning trading. At the time of writing, the price has recovered around half of that initial loss and is sitting on a less scary fall of 6.5%.

The share price had a lacklustre 2019, but that seemed like a rerating after an overheated peak in 2018. Over the past five years, it’s up 70%. Compared to 10% for the FTSE All Share, that’s an outstanding performance.

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 now, the recruitment specialist has suffered from the 2019 scourge that is Brexit, as the political and economic uncertainty has led to many companies adopting a cautious approach to hiring new staff.

Gross profit in the UK (equivalent to net fee income) fell 23% in the fourth quarter, down from £26.8m to £20.7m, but UK performance really needs to be seen in the context of the firm’s total business. With 78% of Robert Walters’ net fee income coming from outside the UK (up from 74% a year ago, after the UK shortfall), the overall quarterly fall was a relatively modest 8%.

Net fees from the Asia Pacific region (the company’s biggest) dropped 4%, Europe was actually up 1%, while remaining international business dropped 7%. Market conditions in Hong Kong were, unsurprisingly, described as “extremely challenging given the ongoing protests.”

Chief executive Robert Walters summed it up with “Trading conditions in the fourth quarter proved challenging with client and candidate confidence impacted by political turbulence around Brexit, the UK general election, Hong Kong protests and the US-China trade standoff“.


But, you know, that’s a pretty hefty bag of troubles to arrive all in one year, and I think it’s testament to the company’s resilience that overall net fees dropped by only 8%.

It also seems wrong to me, especially for a company like this, to base one’s valuation of the shares on a single year’s performance – and the subsequent partial share price recovery after Thursday’s initial sharp drop might well be due to longer-term investors picking up a quick bargain.

That it’s a cyclical and erratic business is apparent from the share price chart – there’s that very nice five-year return, but it’s been volatile. Now, I don’t find much value generally in share price charts, but looking back on past volatility can, I think, help us evaluate the risk with a stock. In the short term, I think this is a risky one.

But the short term doesn’t matter to me, and the longer one’s investment horizon, the more the cyclicality evens out and the more a stock’s long-term potential comes to the fore.


But when it comes to falling shares, what of my insistence on not buying a recovery stock until the recovery is clearly in progress, and not buying one that’s saddled with a lot of debt?

Well, there’s no debt, with £54.4m net cash on the books at 30 June. And I don’t see any need for recovery, as there’s nothing wrong with Robert Walters’ business – it’s just natural cyclicality.

When new forecasts come in, I can still see a price-to-earnings of about 12 with dividends yielding around 3%. For a quality cash-rich company, I see that as a buy.

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

Alan Oscroft 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.