While many investors would prefer it not to be true, share prices always experience a prolonged fall from time to time. This can be as a result of external factors, such as a wider market fall or doubts about the economy, or can be because of disappointing financial performance or changes made to the company’s strategy that hurts investor sentiment.
The latter was a key reason why Santander’s (LSE: BNC) share price fell heavily in 2014 and has continued to do so in 2015. In fact, in the last year its shares have lost 39% of their value after the bank decided to slash its dividend and conduct a placing in order to shore up its finances. The first of these moves meant that Santander’s yield dropped from being among the highest on offer among banking stocks to something rather more average, with the bank now yielding 3.9% only after the aforementioned price fall.
Looking ahead, Santander’s decision to conduct a placing is likely to viewed as a sound move. It means that the bank is financially stronger and can maintain its wide global exposure which, for its investors, is a major plus since it means a less risky profile as well as access to faster growing regions outside of Europe. And, with Santander being expected to grow its earnings by 7% this year and 11% next year, its price to earnings (P/E) ratio of 9.9 is likely to be upgraded over the medium to long term.
SSE (LSE: SSE), meanwhile, has struggled to gain ground following the General Election. Its shares had gained a boost following the Conservative majority victory but, since then, have fallen by around 15%. Part of the reason for this is concern surrounding interest rate rises, with utility companies becoming less attractive as interest rates rise and their finance payments begin to creep up.
While this is a valid reason for increased uncertainty among investors, the reality is that interest rates are likely to rise at a very modest pace. The credit crunch is still fresh in Central Bankers’ minds and, as such, they will be unwilling to risk a return to recession and, perhaps more importantly, deflation. As such, with a yield of 6.2% and a P/E ratio of just 12.9, SSE seems to be a very sound buy right now.
Similarly, AFC Energy (LSE: AFC), the alkaline fuel cell producer, has seen its share price tumble from 58p in July to just 33p earlier this week. There does not appear to be a clear reason for this, although investor profit-taking cannot be ruled out since the company’s shares have soared from just 8p in March.
Despite this, AFC is on-track with its current strategy, as highlighted in a recent progress report by the company. And, with it moving into profitability in its most recent half-year, it appears to be successfully making the transition from a great idea to a great business. Certainly, it is volatile (its shares are up 9% today, for example) and trades on a price to book value (P/B) ratio of 11 but, with a very bright long term future and sound financials, AFC appears to be set to turn its recent poor share price performance around.
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Peter Stephens owns shares of AFC Energy and SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.