During the pandemic, markets became increasingly volatile as Covid-19 took its toll on many different industries. As trading activity grew, online trading stocks benefited from greater commissions. Two of these stocks have posted outstanding results. But can this continue and should I buy? Let’s take a look.
There are two online trading stocks that catch my eye when looking at the FTSE 250. The first, Plus500 (LSE: PLUS), is an Israel-based trading company specialising in Contracts for Difference (CFDs). This platform enables trading of CFDs on more than 2,200 underlying assets. It also has a presence in 50 countries. During the pandemic, it registered impressive results. In the year to the end of December 2020, revenue increased by 146%. This was significantly higher than previous results. Furthermore, these numbers far surpassed expectations. This resulted in a dividend yield that year of 7% and a share buyback scheme that targeted $25m worth of shares. With a price-to-earnings (P/E) ratio of 5.8, this stock has significant upside potential and may be considered a value stock.
Its financial results took a turn for the worse in summer 2021 when the wider market stabilised. The market volatility that had boosted Plus500 had decreased as much of the world was released from pandemic lockdowns. And the share price dropped after it released weaker results
In Q3, the share price fell 12.8% from 1,470p to 1,282p. Yet that fall came in response to revenue dropping by only 2%. Such bearish sentiment after this revenue hiccup leads me to believe that expectations for Plus500 are too high. Nonetheless, I would be concerned with the prospect of lower market volatility in the future, despite my generally positive view of the firm.
In a similar vein, CMC Markets (LSE: CMCX) performed well over the course of the pandemic. The UK-based online trading platform specialises in CFDs and spread-betting. Its full-year to March 2021 saw pre-tax profit up 127%. Furthermore, earnings per share (EPS) were up 104%. Like Plus500, CMC Markets benefited from increased market volatility. With a P/E ratio of just 7.9, I’d be forgiven for seeing this stock as a bargain at its current share price.
Yet as markets became more subdued last year, news coming from CMC Markets was less encouraging. In September 2021, the company even issued a profit warning. Its income guidance for 2022 was cut significantly. The company had originally forecast income of £330m. But this was reduced to £280m and reflected the change in market conditions as we began to emerge from the pandemic.
CMC Markets also confirmed in November 2021 that it may split its leveraged and non-leveraged segments. The split would divide its investment platform from the CFDs, the latter usually generating more revenue when market volatility is greater.
Overall, both Plus500 and CMC Markets are strong companies and have performed well in recent times. Yet I will be buying neither for 2022 at current prices because I still think expectations are artificially high due to their past performances during the pandemic. However, I may buy shares in these two businesses if expectations fall, because I would expect the share price to follow suit.