As Smith & Nephew shares tumble, is it time to buy?

The Smith & Nephew shares led the FTSE 100 loser board this morning after a trading update. Does this offer our writer a buying opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A senior woman sits up on the exam table at a doctors appointment. She is dressed casually in a blue sweater and has a smile on her face as she glances at the doctor. Her female doctor is wearing a white lab coat and seated in front of her as she takes notes on a tablet.

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.

The market did not like a trading update from medical devices manufacturer Smith & Nephew (LSE: SN) released this morning (31 October). As I write on Thursday afternoon, Smith & Nephew shares are down 12% from the closing price yesterday. That makes it the biggest faller of any FTSE 100 share in morning trading.

Created with Highcharts 11.4.3Smith & Nephew Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Does this offer me a possible buying opportunity as a long-term investor?

Disappointing update

In its third-quarter trading update, the company reported 4% growth compared to the same period last year.

Should you invest £1,000 in Smith & Nephew Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Smith & Nephew Plc made the list?

See the 6 stocks

That might sound good and certainly not a reason for Smith & Nephew shares to fall. But it disappointed investors.

The company said that, “China was impacted by worse than expected headwinds across our surgical businesses”. It also lowered its full-year underlying revenue growth expectation to around 4.5%, versus 5-6% previously.

Created using TradingView

Again, that might not sound like a big change.

But bear in mind that we are already over three-quarters of the way through the year, so changing full-year expectations at this point suggests there may be sharply weaker performance still to come in the current quarter.

Will things get better or worse?

I am not persuaded management has really got a handle on how to get the business on track to hit its ambitious growth goals.

In the statement, the company said, “While the revised outlook reflects the headwinds across our surgical businesses in China, we remain convinced that our transformation to a higher growth company… is on the right course“.

In my experience, pinning a sales warning on a single part of the business often foreshadows more widespread challenges. In the quarter, for example, the orthopaedics revenue grew 2.4%. That strikes me as perfectly decent, but it is not the sort of growth I would get excited about if I wanted to invest in a “higher growth company”.

Smith & Nephew’s price-to-earnings ratio of 17 does not seem cheap to me. If the company issues further bad news or underperforms expectations in the fourth quarter or next year, I think it could merit a lower valuation. Earnings per share have declined markedly in recent years.

Created using TradingView

The business does have strengths: a large, resilient target customer market, an established base of buyers, and proprietary technology.

Even just bringing earnings per share back to where they stood a few years ago could help justify a higher price for Smith & Nephew shares.

No rush to buy

But, as the trading statement underlined, there is work to be done.

My concern is that there is more of it to be done that management may currently realise. Having set itself lofty growth goals in recent years, I remain unconvinced as to whether the business can deliver them.

I am thus in no rush to buy the shares and will instead wait to see how the business performs in coming months and beyond.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew 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

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »