It’s notoriously difficult to achieve success trading the markets.
For example, when I clicked onto my IG (LSE: IGG) spread bet account this morning the platform flashed up this warning: “75% of retail investors’ accounts lose money when trading spread bets and CFDs with this provider.”
Good first-half results
In fairness, IG goes on to explain that it offers a complex service for traders. The firm deals in spread bets and Contracts for Difference (CFD). And they come with a high risk of losing money because clients can bet using leverage, otherwise known as borrowed money.
For example, clients can open a far larger position in a spread bet that follows a share price than they would be able to if they bought the shares directly in a share account.
However, one obvious way for IG’s clients to minimise the risk is to avoid the use of leverage. There’s no reason why clients shouldn’t do that with spread bets. And if we as investors are ‘right’ with our stock selections, gains will compound over time without gearing. And gearing while being ‘wrong’ just leads to higher losses.
However, despite the temptations faced by clients to do financially destructive things with IG’s platforms, the firm’s shares look great! Today’s blistering half-year results report covers the period to 30 November and the figures are stunning. Of course, part of the reason for this is that in lockdown, many people turned to trading the markets as a pastime.
Year-on-year, net trading revenue increased by 67% and earnings per share shot up by 126%. However, City analysts expect earnings to ease back a bit in the year to May 2022 as the pandemic hopefully fades. Maybe many people will get back to work and have less time for trading the markets.
A great record and further expansion abroad
But the company has a cracking multi-year financial record and scores well against quality, value and momentum indicators. Indeed, operational progress has driven decent gains from an increasing share price. There seems little doubt that IG runs a lucrative, cash-generating business. And the company’s hitherto big net-cash hoard on the balance sheet adds to my conviction about that.
IG also announced today the proposed acquisition of tastytrade inc. And the directors described the American company as a “high-growth” US online brokerage and trading education platform. It enjoys a “leading position” in US-listed derivatives (CFDs and spread bets are types of derivatives, for example) and has more than 105,000 active accounts.
It plans to finance the $1bn deal by paying $300m in cash and by issuing 61m of its own shares worth around $700m. Chief executive June Felix said in the interim report that the acquisition will help operations diversify into US exchange-traded options and futures. The market has around 1.5m retail traders and Felix says she’s “confident” the transaction will “materially expand” IG’s US presence.
I think IG looks like a decent growth stock. And with the share price near 855p, there’s a dividend yield running around 5% to keep me warm while I’m waiting.
Kevin Godbold has no position in any share 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.