FTSE 250 incumbent Moonpig (LSE:MOON) has seen its share price drop in the past six months. At current levels, is there an opportunity for me to pick up cheap shares for my portfolio? Let’s take a look.
Greeting cards giant
Moonpig is an internet-based greeting cards, gifts, and flower business. The rise in tech has seen the greeting cards market move online where consumers can pick, personalise, and directly send a greeting card, a gift, or flowers, to a loved one.
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As I write, shares in Moonpig are trading for 380p, whereas six months ago shares were trading for 21% higher at 487p. Moonpig shares are down 7% over a 12-month period overall as they were trading for 410p this time last year.
I believe Moonpig’s share price has been detrimentally affected by recent performance linked to macroeconomic issues and pressures.
There are a few factors that are putting me off Moonpig shares right now. Firstly, performance has dropped from 2021 levels, which is worrying. The FTSE 250 incumbent released an interim report today for the six months ended 31 October. It showed that revenue and profit were 8.5% and 30.6% less than the same period last year. There were some positives which pointed towards a higher customer base and a new record for attached gifting levels. This is when a consumer attaches a gift to a card when making a purchase. Furthermore, debt levels did decrease too.
Debt is a major concern for me. Moonpig shares only debuted on the London Stock Exchange in February and the share price has been quite volatile since then. Debt levels are quite high and Moonpig points towards “technical reasons” which usually means technology-related cost and infrastructure needed to run an online-only business.
Competition in the online greeting sector is getting intense. Other major players in the market are vying for the same customer base. Funky Pigeon is one such competitor.
The rise in cases and the new Omicron variant will worry consumers as, after all, greeting cards are a discretionary or luxury expense. If cases rise and restrictions come into force, consumers may be worried about their pockets and steer clear of non-essential spending.
Finally, rising inflation and costs are a worry for all businesses and Moonpig is not exempt. Rising costs can affect margins and investor returns and if these costs are passed on to its customers, the same customers could look for cheaper alternatives.
A stock I’m avoiding
At current levels and the current state of play, I would not buy Moonpig shares. Despite its cheapened share price, for me the negatives outweigh any positives the firm does possess. It is worth noting that some of the issues could be short term. These include Covid-19 implications and rising inflation. I believe 2021 performance was over-inflated due to the pandemic. This led to people keeping in touch using technology. I personally used online greeting cards when I wasn’t able to see my friends and loved ones while in lockdown. I will keep an eye on developments.