It is becoming increasingly difficult to write the words ‘dirt-cheap FTSE 100 stock’ together now. As I write, the FTSE 100 index is close to 7,400, having risen quite a bit in this month alone. This of course means that its constituent stocks are rallying as well, which is making them expensive. However, not every single stock is partaking in this stock market rally.
Polymetal International’s share price fall
An example is the precious metal miner Polymetal International (LSE: POLY). The stock has actually seen a decline of 8% in share price over the past year. The fall of over 17% is even more pronounced when I compare it to its highs of a few months ago in May. And to think of the fact the a little over a year ago, in August 2020, the stock had actually reached an all-time high!
A dramatic share price fall means that the stock is now trading at dirt-cheap multiples compared to the average FTSE 100 stock. While its price-to-earnings (P/E) ratio is at around 8 times, the average FTSE 100 P/E is at 20 times. As other stocks increasingly look pricey, just this fact could suddenly make it attractive.
But before that, I have to assess whether it is indeed a bargain buy or if it is a falling knife that can lead me to losses if I bought it now. My interest in it is personal, because I had bought it last year, and my current losses on it make me cringe. But if there still is merit to the stock then I might just buy more of it. This could reduce the proportion of my losses for now and set me up for bigger gains later.
High dividends, good earnings for the FTSE 100 stock
One reason I liked the stock is its dividend yield. At present it is 6.9%, which is significantly higher than the 3.4% average yield for the FTSE 100 index. Polymetal International has also reliably paid dividends for much of the past decade. This encourages me about its dividend continuity.
Looking at the company’s results also gives me confidence. For the past three years, it has consistently increased revenues and has also been profitable. For the first half of 2021, it showed an increase in both revenue and net earnings compared to the same time in 2020. It also saw a huge 44% dividend growth. Its third-quarter revenues have declined, but it its yet to release the details of the earnings report so I am still hopeful that the overall results could have some balancing factors.
What I’d do
It also has a unique advantage over other stocks. It is the defensive stock of last resort. This means that if all else fails, at least there is gold. So I think it is actually a great one to hold when preparing for a stock market crash. Since the economy has not yet recovered, but the stock markets are flying high, the possibility of a crash is rising. Keeping that in mind, it might just be a good idea to for me to buy more of the stock for the foreseeable future. I see it more as a bargain buy than a falling knife!
