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How Much Further Can AO World PLC, Monitise Plc And Rolls-Royce Holding PLC Fall?

Increasing prospects for a last-minute sell-out by the Greek government have given the FTSE 100 a boost, but London’s top index is still down 7.5% since April. But do bearish times like these provide us with bargains? A lot of that depends on why a share is falling.

Online fridges

Shares in online household appliance retailer AO World (LSE: AO) are down 45% over the past 12 months to 130p, but that hides a bigger story — since they peaked at 336p back in February, we’ve seen a 61% loss! A downbeat trading update on 24 February kicked off the slump, signalling the all-too-familiar ending of a bubble based on hype rather than cold hard cash.

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It happens all the time, when a high-flying growth punt fails to exceed initial expectations — the early gamblers leap off the bandwagon and rush to find the next hot thing. But has the fall abated? The problem with a “jam tomorrow” stock like this is that it’s impossible to quantify. Forecasts suggest a tiny profit by March 2016 with something more substantial in 2017, but that’s all just guesswork right now and still puts the shares on a high valuation. And I just don’t see the barriers to entry that would place AO World above the general online marketplace.

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Mobile payments firm Monitise (LSE: MONI) has suffered an even bigger fall, with its shares down 87% since their high of February 2014, to just 6.9p apiece today. The latest blow came from Visa Inc, which is dumping its shares in the company — Visa’s commercial deal with Monitise runs out in March 2016, and I wouldn’t be betting on the contract being renewed.

Monitise has been burning cash for years and has failed to meet early expectations, and the City’s analysts aren’t forecasting any profits before 2017 at the earliest — even though the company now says it should turn in a profit on an EBITDA basis in 2016. But this is another unquantifiable prospect right now, and if you invest in Monitise today you’ll be taking on a large helping of risk.

Aerospace

But how about a company with a long and proud track record, which has fallen on hard times of late? I’m talking of Rolls-Royce (LSE: RR)(NASDAQOTH:RYCEY.US), which has shocked the markets with a string of profit warnings, the latest just a few days ago. The result has been a 36% fall in the share price in two and a half years to 764p, with a 2015 recovery faltering as the shares have dropped 28% since a recent peak at the end of April.

But Rolls-Royce actually makes stuff, and there is still serious long-term demand from the commercial aviation business — with the long-haul and widebody jet markets tied up by Rolls and GE Aviation, there aren’t going to be any upstart competitors appearing any time soon. Rolls-Royce is the only one of these three that I’d consider buying.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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