All investors have their favourite stocks, those they can’t imagine parting with. Likewise, they probably also have those stocks they wouldn’t touch at all. Obviously it pays to keep an open mind because the investment landscape can change quickly. But as things stand, I won’t be owning these two UK shares any time soon.
THG
A stock doesn’t usually lose 92% of its value inside two years for no good reason. And I think there are a few legitimate ones explaining why THG (LSE: THG) has done just that.
Firstly, I think the company is juggling too many balls at once. The Hut Group (as it was formerly known) has a multitude of beauty and nutrition websites. Some of these are very popular, such as Lookfantastic and Myprotein.
But THG’s websites also sells clothes, footwear, cycling equipment, gadgets and various other items. It has 300 localised websites, dozens of brands, as well as operating spas and hotels.
On top of this, it also has a division that provides e-commerce services to other brands to help them sell online. This segment (called Ingenuity) grew 21% year on year during the first half of this year. Actually, this part of the business looks promising to me. It could even underpin a share price recovery, were growth to continue.
However, there are no group profits to show from all these moving parts. Revenue for this year is expected to be around £2.4bn. That is a substantial figure, to be sure. Yet THG is also expected to report a pre-tax loss of around £175m.
The firm posted 12% year-on-year growth for H1 of this year. That’s lower than previous periods, although comparisons are unfavourable coming off the back of the pandemic. Still, I think the market is unlikely to reward slowing growth and no earnings.
Plus, there have been questions surrounding founder Matt Moulding’s personal property dealings in relation to the firm.
Worryingly, many of the large shareholders who participated in THG’s £5.4bn stock market floatation last year have lost faith. Japan’s SoftBank has sold its shares and written off £450m. And BlackRock, which bought a 15% stake worth £300m, has also slashed its holding.
I think I’d be following them to the exit doors too if I were a shareholder.
Cineworld
Cineworld (LSE: CINE) recently filed for Chapter 11 bankruptcy protection. The cinema chain had been debt-laden for years before Covid-19 further ravaged its balance sheet. That debt pile now stands at around $8bn.
It’s been reported lately that Vue International (the UK’s third-largest cinema chain) is ready to make some sort of offer for Cineworld. Bizarrely, Vue only recently went through its own £1bn restructuring deal to save itself from the abyss.
Sadly, cinemas have experienced declining foot traffic for years. Cineworld is on the wrong side of changing consumer behaviour. I think it’s a sinking ship, as reflected in the share price. The stock is down 97% over two years.
Still, any confirmation of a takeover could send Cineworld shares up. But as a long-term investor focused on finding quality companies, I have zero interest in the stock.
There’s an ocean full of quality stocks with promising futures out there. I’d rather spend my time focusing on them instead.
