Shares in online trading platform and FTSE 250 constituent Plus500 (LSE: PLUS) were on the front foot this morning, despite the company posting a drop in revenue. I think this may have something to do with the shares already looking almost embarrassingly cheap.
FTSE 250 performer
Plus500 announced today it had “delivered significant further positive momentum” so far in 2021. All told, group revenue hit £346.2m over the first six months. Even so, this was far less than the $564.2m achieved over the same period in 2020.
This shouldn’t come as a surprise. The volatility seen in global markets back then was unprecedented. And when you’ve a company whose business thrives on this kind of thing, record performance should really be a given. As such, I’d say this still counts as a positive result.
The ongoing recruitment of clients may also help explain today’s reaction. Plus500 also added a little under 137,000 new customers from January to June. Moreover, the activity level of customers — those actually making trades — continued to be high.
The outlook’s promising too
Plus said that it was confident it would continue to perform over the rest of 2021 “and beyond.” As a potential long-term investor, that last bit is key for me, as is the company’s desire to become “a global multi-asset Fintech Group.“
In line with this strategy, the FTSE 250 member recently launched a share dealing platform. The idea of providing multiple products to customers is one I like. The more products offered, the greater the possibility of cross-selling to existing customers. The recruitment of new clients is also more likely.
Recent acquisitions will also allow the firm to enter the potentially very lucrative retail trading market in futures and options on futures in the US. This is something it regards as a “major growth opportunity.“
But don’t ignore the risks
Before markets opened, shares in Plus500 were valued at a little over 7 times forecast earnings. That seems ludicrously good considering how well the company scores on quality metrics such as profit margins and returns on capital. It’s long had a huge amount of cash on its balance sheet too. What gives?
There may be a couple of reasons. First, there’s the ongoing threat of regulation. Today, Plus500 was keen to highlight that its ongoing performance had been achieved despite new rules in its Australian market.
However, there’s nothing to say this won’t cause issues later down the line. Expanding its geographical footprint won’t necessarily provide protection either, as other countries could follow suit. Seen from this angle, Plus500’s apparent ‘cheapness’ does make some sense.
There’s also the opportunity cost of investing here. As the recent market debut of Wise shows, some fintech companies have more pulling power than others. This is especially the case if their share prices jump by double-digit percentages in short order.
There’s no question that Plus500 has enjoyed a purple patch. And, in the absence of another market crash or correction, it does seem like this may be coming to an end.
Nevertheless, I’d still be willing to buy the stock today if I were diversified elsewhere and looking for companies offering a good mix of value, potential growth and dividends. This FTSE 250 stock continues to get a box-tick from me.