Profits down 12%, but is this FTSE 250 company a bargain for my Stocks & Shares ISA?

Difficult trading and a big dividend yield of almost 6% means I’m tempted to stock up with these shares for my ISA.

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I’m always looking for bargain shares and stocks for my ISA. But cheaper valuations often arise because a business has run into bother.

Billionaire investor Warren Buffett loves such situations.

There’s no way I’m claiming to possess his investing prowess. But bargain valuations attract me, so let’s look at this morning’s car-crash second-quarter trading update from the FTSE 250‘s PageGroup (LSE: PAGE), the specialist recruitment consultancy company.

The market saw this coming

Before getting into the figures — and they are grim — it’s worth noting the share price has held up quite well, so far:

Dyed-in-the-wool value investor Anthony Bolton (one-time Fidelity fund manager) once said his first port of call for any potential value situation was always the charts. He wanted to know how early or late he was discovering the story.

In the case of PageGroup, I reckon the lack of a precipitous plunge today means the market was expecting the news. It might also mean the valuation of the company is already where it needs to be.

After all, near 400p, the stock is down around 18% since May. So the market probably saw it all coming.

In the second quarter of 2024, gross profit dropped by 12% year on year. The outcome was driven by a “softening” of activity levels in most of the firm’s markets around the world.

However, the company held the shareholder dividend. On top of that, the directors intend to “broadly” maintain the head-count of fee earners in anticipation of business recovery… eventually.

Chief executive Nicholas Kirk said the company had already reduced staff numbers throughout last year — times have been tough for a while. However, Kirk thinks the business is now well placed” to take advantage of opportunities as sentiment and confidence improve.

In the meantime, Kirk believes PageGroup will perform well despite the challenging environment.  

Challenged by cyclicality

One of the main risks is that the business and the sector are both cyclical. It’s normal to see ebbing and flowing of revenues, earnings, and cash flows.

But what’s unknown is the depth of this down-cycle. It’s possible that poor trading could continue or even worsen from where things are now. The dividend’s been held for the time being, but it’s been cut before and could be axed again in the future.

Equally, business could turn up again soon, or perhaps flat-line. After all, today’s poor figures are historical and not a reliable guide to future performance.

Nonetheless, City analysts predict an earnings recovery in 2025 and ongoing progress with the dividend. Set against those expectations, the forward-looking earnings multiple is just below 14 and the anticipated dividend yield is almost 6%.

At first glance, that valuation looks attractive. However, the share price first reached current levels around 17 years ago. Dividends have come and gone and come again during that time. Cyclicality in the business has driven a lacklustre long-term outcome for shareholders.

My expectation is for more of the same over the next decade or so. For that reason, although I’m tempted by the valuation, I reckon there are better value and dividend stocks to consider for my Stocks and Shares ISA.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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