Moneysupermarket has been slapped with a broker downgrade from Jefferies this morning. The stock is down nearly 7% at 310p which is slightly below the new target from Jefferies of 312p. Jefferies had a 440p price target for the stock and this large cut in the price target is why investors are spooked and selling. However, fundamentally the business is very strong and it has become the go-to comparison website for financial services.
The forward price-to-earnings (P/E) ratio for 2017 is just 18, which is relatively cheap for a growing company. The company also pays a good dividend and shares currently yield 2.8%. For me this would be a nice addition to an income portfolio as further dividend increases could be around the corner. Simon Nixon, the founder, has recently sold his remaining stake for over £120m, which may have scared investors but at around 310p Moneysupermarket looks like a solid bet for the long term.
Defensive rights issue
Yesterday Cobham released the terms of its rights issue in which the company is raising £507m through a 1 for 2 rights issue at 89p. The company has been under pressure since the 70% drop in first-quarter profit, which has led to banking covenant problems. The CEO has stated that “the rights issue will put Cobham on sound financial footing by reducing gearing” and that the dividend will be maintained for this year.
Maintaining the dividend hasn’t been taken well by shareholders and I think there’s a small chance the dividend may be cut due to shareholder pressure. However, the main aim of the rights issue is to keep Cobham from breaking banking covenants and to ensure it has a solid balance sheet going forward. Shares in the company are down over 52% this year but I still think it’s too soon to be buying them.
Even though Monitise has many blue chip clients for its online payment services it has failed to turn this into any sort of profit. The company has made a loss over the last two years and there are no predictions of profitability any time soon. Losing the partnership with Visa was a big blow for the company and new payment systems from competitors are causing increased competition for the company. Monitise has struggled constantly over the last year or two and I see no change to that. I would avoid owning Monitise shares at all costs as the valuation looks high and the business model hasn’t been successful yet.
These three companies are all down heavily today but I would still avoid Cobham and Monitise. Moneysupermarket is a bit different as it’s in a fundamentally strong position but the broker downgrade does raise some cause for concern. Such a large price cut is a red flag for many investors so shares may continue to drift lower in the coming months.
Growth stocks like Monitise can make huge gains but always carry an increased level of risk and must be chosen carefully to avoid losing all your investment.
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Jack Dingwall has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. The Motley Fool UK has recommended Moneysupermarket.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.