I’ve been looking to take advantage of today’s stock market volatility to buy some cut-price FTSE growth stocks for my Stocks and Shares ISA.
While searching, I did something I haven’t done for a while, and called in ChatGPT. I learned long ago that the chatbot can’t be relied upon to tip stocks, and to be fair, it admits that itself. But it did highlight three interesting FTSE 250 opportunities, while serving up its usual share of errors.
It tipped Pets at Home
ChatGPT’s first growth pick was Pets at Home Group (LSE: PETS). Its shares dipped 20% in the last year but are cheap as a result, with a price-to-earnings (P/E) ratio of just over 11.
It said the UK pet market has shown held up despite the cost-of-living crisis, and the company’s Pets Club loyalty programme boasts 7.8m members (actually, its 8.1m), driving recurring revenues.
ChatGPT stuck to generalities after that, warning that economic pressures may hit revenues, while failing to warn that underlying pre-tax profit is expected to decline from £133m in 2024 to between £115m and £125m.
It did mention that the pet care market faces competition from supermarkets and online retailers, which does worry me. While the stock yields more than 5%, I’m not going to bite.
Kainos Group has taken a hit
My robot buddy’s next pick was Belfast-headquartered software company Kainos Group (LSE: KNOS).
Its shares have fallen 25% over 12 months, and are trading close to a five-year low. They’re not super cheap though, with a P/E of 15. That’s roughly in line with the index average.
ChatGPT said Kainos has “a strong position in Workday software implementation and a significant footprint in government digital services”, which gives it stable revenue streams.
It added that “the board recently warned it could undershoot revenue expectations”, but when I checked, this was based on a report from last September. Which shows the danger of relying on a ‘bot to review stocks.
Kainos last reported on 14 April, just a fortnight ago, and said its Built on Workday partnership puts it on track to meet its initial target of £100m annual recurring revenue by 2026, with a longer-term aim of £200m by 2030. The board highlighted its “strong balance sheet, robust cash flow and a healthy pipeline”.
I’m glad ChatGPT highlighted this stock, but I’m only treating its tip as a springboard to further investigations.
Switching on to ITV?
Its final pick was broadcaster ITV (LSE: ITV). Which didn’t even meet my criteria, as it shares are actually up 10% in a year.
Still, the ITV share price looks good value with a P/E of 8.1 while yielding 6.2%. These are my figures, ChatGPT’s numbers were behind the times.
In fact, I’ve had to ditch all of its figures, as they were based on last year’s numbers, even though ITV published full-year results on 6 March.
These showed record profits driven by the success of titles such as Mr Bates vs the Post Office, Fool Me Once, Rivals and Love Island USA, helped by £60m of “efficiencies”.
ITV looks tempting, but I’m worried by news that rival Channel 4 is struggling with advertising revenues. The broadcasting sector is too risky for me. Although not as risky as relying on AI to tip stocks.
