Down 16% in a month! Can this FTSE 100 stock recover in April?

Grabbing low-priced shares with long-term growth potential is an investor’s dream. I think this FTSE 100 share may be an undervalued opportunity.

| More on:
Photo of a man going through financial problems

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m looking at one FTSE 100 share that suddenly dropped to a four-month low in the past two weeks.

Investor lore proclaims that ‘time in the market’ beats ‘timing the market’. The original quote implies that trying to catch price highs and lows is less effective than simply remaining invested for the long haul. 

While that may be true, it’s always tempting to try and reel in a few cheap shares while the fishing is good.

So what’s the deal?

M&G (LSE:MNG) shares crashed 16% over the past few weeks despite the company posting positive results on 21 March this year. The impressive 2023 full-year report included net client inflows up to £1.1bn from £0.2bn last year, not to mention a 28% rise in adjusted operating profit before tax

So why the sudden slump? 

Sure, the £4.8bn investment manager barely bothered to raise its dividend yield but at 9.77%, can shareholders really complain? The company is still on track to pay a dividend of 13.2p per share on 9 May, 2024. That’s only a 0.2p decrease from April 2023 – hardly a cause for concern. 

The dip could be a lagging fallout from the suspension of its property portfolio in October last year, funds from which were planned for distribution this February. But at the time the news broke, the share price only suffered a minor setback and recovered within weeks. The sudden decline now could be explained if there were an unexpected delay in fund distribution — or as a result of the distribution itself.

Can the charts reveal anything?

Using a discounted cash flow model, analysts estimate the £1.97 shares to be trading at 48% below fair value. But when compared to net income, the price seems accurately valued. M&G’s net income has declined 72% over the past three-and-a-half years, leaving it with a trailing price-to-earnings (P/E) ratio of 16.25 (slightly above the industry average but not particularly high for the financial services sector).

Created in TradingView.com

Looking at price forecasts from several analysts, consensus estimates are for a 17% increase in the coming 12 months. Considering how comparatively low the price is now, I would say that seems about right. It could be mimicking a similar price movement pattern that occurred back in early 2023. Last year, a big dip in March saw the price regain 23.35% in the following six weeks.

Created in TradingView.com

Having fallen to 20, M&G’s relative strength index (RSI) is now the lowest it’s been in over 18 months — usually a precursor to a price reversal. In September 2022, after the RSI dipped below 19, the price rose 44% in the following six months. RSI seldom stays below 30 for long, usually rising along with the price.

Created in TradingView.com

Overall, I can’t uncover any fundamental reason for the price decline. If it’s a one-off dip as a result of the property fund distribution, then it’s unlikely to fall further. And according to the charts, the price could start rising again in the coming days.

M&G remains a solid company with a great dividend. In the long run, I don’t think this dip is too serious. But at this point, I would keep my eye on the shares to be sure the sell-off has ended before buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »