If we look at the 98% fall for Metro Bank (LSE: MTRO) shares in the past five years, it might not scream out as an obvious value stock. More like a money pit.
After all, we’ve seen so many go on from a result like this to the full 100% fall. Do I think that’s a possibility for Metro Bank? Oh yes.
So why am I thinking of putting a small amout of cash into the stock? Let me explain.
Super low valuation
The first measure most of us reach for when we want to find good value stocks is the price-to-earnings (P/E) ratio.
Now, that can hide all sorts of shocks. But in general, lower is better.
It’s why I rate Barclays, on a P/E of only five, as one of the best bank stocks to consider buying now. That’s about a third of the FTSE 100‘s long-term averge, so I see a big safety margin there.
But a low P/E can also signal risk and uncertainty, both of which cloud the bank sector right now.
Bust, or multibagger?
When we look at the forecast P/E for Metro Bank, it’s about 4.5, so a bit less than Barclays.
But forecasts show rising earnings in the next two years, dropping the P/E to under two by 2025! To me, what that says is the brokers see a high chance of the company going bust.
But if it doesn’t, and if we see anything like a sustainable recovery, might the share price take off and reward investors with a multibagger winner?
Now, Metro Bank has been through a sea of troubles, and has needed some serious refinancing to keep it afloat.
Light ahead?
The most recent news tells us that CFO James Hopkinson is the latest to leave the sinking (or maybe refloating) ship.
But we found out something in December that I think is cause for cautious optimism. At one stage, it looked like Metro Bank might have to sell off its residential mortgage book to survive.
But we’ve since heard that the firm’s “recent capital package and cost reduction plan … has renewed balance sheet strength.“
The board went on to say it had “considered a potential sale of up to £3bn of residential mortgages and concluded that, given the prevailing market environment, it is in the best interests of shareholders to retain the existing loan portfolio.“
Too risky?
Is this too risky an investment to consider? If I didn’t have a diversified portfolio, I’d say so. And I also wouldn’t put a lot of money on it.
I’ve always held a variety of stocks, to help with the risk from any individual sector. Right now though, I’m a bit heavy in finance, and that makes me pause.
So my key focus in 2024 will be on more dull, boring FTSE 100 cash cows. But with a small amount of my cash, no more than I can afford to lose, I might just go for a bit of Metro Bank excitement.
