Spotting shares trading at 52-week lows is a popular starting point for value investors looking for stock market investment opportunities. With that in mind, one FTSE 250 company that has sunk to its lowest point in a year has caught my eye.
However, this strategy has risks. A stock might appear cheap because it’s touched a symbolic low. But if there are valid reasons behind the share price fall, the company might be fairly valued by the market. What’s more, it could fall even lower.
The company I’m referring to is Plus500 (LSE:PLUS), which operates an online trading platform for retail investors in Contracts for Difference (CFDs). So, let’s explore whether this stock could be a bargain buy after a 24% share price fall over the last six months.
What are CFDs?
First, it’s helpful to understand Plus500’s business model. The global fintech firm traces its origins to the 2008 financial crisis when it was founded in Israel.
Today, it’s listed on the London Stock Exchange and has a market cap of £1.3bn. The company offers customers the ability to trade CFDs on over 2,200 financial instruments. These include equities, indices, commodities, options, exchange-traded funds (ETFs), cryptocurrencies, and foreign exchange.
A CFD is a product that follows the price of an underlying asset without the need to own the asset in question. This gives traders access to leverage, the ability to short sell, and the benefit of low deposit requirements.
Shareholder rebellion
A major factor behind the falling Plus500 share price is the fractious relationship between the firm’s leadership and its shareholders. Almost 75% of investors voted against the company’s recent pay proposals for its top brass. However, the group’s pushing ahead regardless as it was a non-binding vote.
This means CEO David Zruia and CFO Elad Even-Chen will see their annual remuneration packages increase by 90% and 76% respectively to £3.6m and £3.7m.
Unhappy shareholders can join forces through concentrated selling, thereby pushing a company’s share price down. There’s a clear risk Plus500 shares could fall further if the business fails to soothe investors’ concerns.
Residual strength
Despite shareholder frustration, the company’s financial results look solid. Profits more than doubled in the first quarter and underlying earnings eclipsed $100m — a 116% rise on the previous quarter.
In addition, Plus500 added 28,200 new customers and it continues to expand its global footprint with a new licence to operate in the United Arab Emirates and plans for a US stock market listing.
What’s more, the company offers a healthy 5.2% dividend yield and trades at an attractive multiple. The stock’s price-to-earnings (P/E) ratio currently stands at around 4.8.
A bargain buy?
I’m concerned by Plus500’s relationship with its shareholders. There are risks to investing in a company that doesn’t see eye-to-eye with its investors. After all, details about the calculations underpinning its bosses’ pay packets are murky.
However, I struggle to find major flaws in the core business model. This is a company that’s primed to benefit from a stock market recovery, which would likely lead to increased investor confidence.
If I had spare cash, I think this could be a rare opportunity to snap up a cheap dividend stock. I’d buy.
