Today, I’m looking at three companies whose shares have fallen markedly during October. Could these unloved stocks now be bargain buys?
Shares of FTSE 100 outsourcing giant Capita (LSE: CPI) plunged 27% on a profit warning on 29 September. They’ve gone on to lose further ground during October, being 12% down for the month.
As a result of a “slowdown” in some businesses, “one-off costs” on one large contract and “delays” in client decision-making, Capita reset pre-tax profit expectations for the current year to between £535m and £555m — 10%-13% below the City consensus and 5%-9% below last year’s level.
The shares are now down a disproportionate 38% from their price immediately prior to the profit warning, which suggests that the market may have overreacted. Capita trades on just 9.7 times this year’s forecast earnings, with a prospective dividend yield of 5.4%.
Renowned fund manager Neil Woodford came away from a post-profit-warning meeting with Capita’s management “reassured” and “confident that the dividend is safe.” So, I’d say Capita could prove to be a rewarding buy for patient, long-term investors.
Moving from the FTSE 100 down to the second-tier FTSE 250, electronic components maker Laird (LSE: LRD) issued a profit warning on 19 October. The company, which supplies tech giants including Apple and Samsung, said it has “poor” visibility on volumes for mobile devices, is experiencing “unprecedented” pricing pressures and “some” operational issues.
As a result, management now expects pre-tax profit for the year to be about £50m — 32% below last year’s level of £73m. The shares have lost 52% of their value since the start of October, but this appears less disproportionate than Capita’s decline.
At a share price of 151p, Laird also trades on a sub-10 earnings multiple, but the dividend (yielding 8.6% at last year’s level) is poorly covered by prospective earnings and looks vulnerable to being cut. The “unprecedented” pricing pressure the company’s facing also gives me cause for concern, as the erosion of a business’s margins can be an insidious disease.
Laird’s management sounds upbeat on the outlook for next year, but this is a stock I’d rather watch than invest in at this time.
Does this airline appeal?
Shares of Exeter-based airline Flybe (LSE: FLYB) have fallen 25% during October. There was no profit warning in the case of this FTSE SmallCap firm, merely the continuation of a long decline.
The sacking of the company’s chief executive last Wednesday didn’t perk the shares up. I’d say that in the eyes of investors, management ranks as a secondary issue to a simple lack of enthusiasm for a sometimes profitable/sometimes lossmaking airline that flies people on turboprops from secondary and tertiary airports.
At a share price of 37.75p, Flybe is trading on 13.9 times forecast earnings for its financial year to March 2017, with no dividend expected (as usual). This isn’t a business that appeals to me.
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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.