Amigo Holdings’ share price is rising. Should I buy the stock for my portfolio?

Amigo Holdings’ share price has more than doubled over the last month. Here, Edward Sheldon takes a look at the investment case.

| 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.

One UK stock that’s had a huge bounce recently is Amigo Holdings (LSE: AMGO). Over the last month, its share price has more than doubled to 13.75p. However, over 12 months, it’s still down about 45%.

Is this a stock I should consider for my own portfolio? Let’s take a look at the investment case.

Amigo Holdings: business description

Amigo Holdings is a UK-based guarantor loan company that allows people to borrow between £2,000 and £10,000 with a guarantor (someone, usually a friend or family member, who agrees to back up the borrower and step in to make repayments if they don’t). Amigo’s aim is to give people the chance to borrow even if they don’t have a great credit score.

Amigo listed on the London Stock Exchange back in 2018 at an Initial Public Offering (IPO) price of 275p. Since then, the stock has underperformed badly, falling to near 5p in June last year. At its current share price, its market capitalisation is about £62m.

Recently, the company has appointed a new leadership team in an effort to turn itself around. “We are a new leadership team that wants to correct past mistakes in a way that is fair and equitable to all our customers – including our 700,000 past borrowers and guarantors,” Amigo said in a statement.

It’s worth noting that a couple of directors have purchased a small amount of shares recently, which could indicate they expect Amigo’s share price to rise.

Amigo’s Q3 results

Looking at Amigo’s recent third-quarter results for the period ended 31 December, the company appears to be struggling.

For the nine-month period, revenue also came in at £137.5m, down from £218m in the same period in 2019. This drop in revenue was driven by a pause in all new lending and the loss arising from Covid-19-related payment holidays (62,000 customers had been granted payment holidays as at 31 December). Meanwhile, the company generated a loss before tax of £71.6m, compared to a pre-tax profit of £55.3m in the year before.

What stands out to me here is the ‘complaints expense’. This surged to £116.2m for the period, up from £26.6m in the year before.

Amigo Holdings shares

Source: Amigo Holdings

Looking ahead, analysts expect full-year (ending 31 March) revenue of £176m. For the following year, the consensus revenue forecast is £128m.

Turning to the balance sheet, the company reported non-current liabilities of £344.1m at 31 December. Equity on the balance sheet was £153m, giving a long-term debt-to-equity ratio of a high 2.2.

Complaints risks

Going back to the complaints issue, this appears to be a big problem for Amigo. According to the Financial Ombudsman Service, complaints about guarantor loans soared last year. Between October and December, there were more than 10,000 related complaints, up from just over 300 in the same period a year before.

Many of the complaints – which ranged from borrowers saying their lender shouldn’t have given them a loan because they couldn’t afford it, to family members claiming they didn’t agree to be a guarantor – were about Amigo. This issue adds risk to the investment case. 

My view on Amigo shares

Putting this all together, Amigo isn’t a stock I want to buy right now. It just looks too risky. There are lots of other stocks I’d rather buy that are a better fit for my portfolio.

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.

Edward Sheldon has no position in any 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

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

How would I start planning my Stocks and Shares ISA for 2025? With this super-solid growth stock

I can’t think of a better way to prepare for a new year than opening a fresh Stock and Shares…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 26% to just £4, Glencore’s share price looks cheap to me right now

Market pessimism over China’s economic growth has helped push Glencore’s share price down but I think this is overdone, leaving…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in November [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Why now could be the time to get ready for a stock market crash

Both the FTSE 100 and the S&P 500 climbed after the US election results. But Stephen Wright thinks now is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

A UK share and an ETF that could soar following Trump’s election win

Donald Trump's White House return poses huge uncertainty for the global economy. But this UK share and ETF could gain…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 FTSE stocks that demonstrate the best (and worst) of the AIM market

Our writer looks at the performance of two very different FTSE stocks that highlights the pros and cons of investing…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a P/E ratio of 8 and selling for pennies, is this FTSE 250 share a bargain?

Christopher Ruane digs into a cheap-looking FTSE 250 share that sells an iconic product and considers whether it's really a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could the stock market crash in 2025?

Our writer considers some possible drivers for a stock market crash. Rather than try to time it, he's wondering how…

Read more »