The TP ICAP (LSE:TCAP) share price has fallen by double digits since reporting earnings on Tuesday. This latest fall has continued to push the stock in a downward trajectory since March. And, consequently, its 12-month performance is a disappointing -22% return. So what has upset investors? And is the drastic drop in price actually a buying opportunity for my portfolio?
The TP ICAP share price versus earnings
As a reminder, TP ICAP is a global wholesale broker for the over-the-counter and exchange-traded markets. This business matches buyers and sellers for shares and other asset classes like commodities, charging a small transaction fee for its services.
Despite what the TP ICAP share price would suggest, the latest trading update showed some encouraging signs, in my eyes. Over the last three months, total revenue jumped 15% to £447m, with growth reported across all its divisions.
But what I find most impressive is the rapid adoption of its relatively new Agency Execution services. This segment focuses on providing pre- and post-trading services to financial institutions, and sales have jumped by 353% compared to a year ago!
Needless to say, this all seems quite impressive. So why did the stock fall?
Guidance disappoints
It’s no secret that the markets in 2021 have been quite volatile. That, in turn, has created more opportunities for traders to profit and is also why the volume of trading in general skyrocketed, helping to fuel TP ICAPs growth.
However, despite achieving a double-digit revenue boost this past quarter, the last nine months haven’t been as impressive. In fact, sales since the start of 2021 are flat, coming in at £1.38bn – the same as 2020. And management’s guidance suggests this lacklustre performance is going to continue throughout the rest of the year.
How did this happen? While its Commodities and Agency Execution divisions might be delivering explosive growth, they remain only a small part of the overall revenue stream. Most of the gross income is generated by its global brokering services, which has fallen by 4% since the start of the year.
Obviously, seeing overall growth come in flat is hardly a good sign. So, I’m not surprised to see the TP ICAP share price fall on its latest earnings report.
A buying opportunity?
On a price-to-sales basis, the recent downward trajectory of this stock makes it seem like it’s priced at a discount. After all, assuming management’s forecasts are accurate, revenue for 2021 will be around £1.8bn, versus the current market capitalisation of £1.1bn.
However, the seemingly-low TP ICAP share price may be a value trap, as overall revenue growth appears to be stagnating. As said, while its other divisions are snowballing, they remain only a small part of the business today. That may change over the long term, but it’s unclear just how long that will actually take. So, for now, I’m keeping TP ICAP on my watchlist.
