The Motley Fool

I’d happily buy FTSE 100 stock Smith & Nephew despite this chilling news

I’ve long been a fan of Smith & Nephew’s (LSE: SN) growth credentials and continue to be so, even if latest trading details released on Thursday fell short of the mark.

The builder of artificial joints and limbs was dealing 7% lower at the time of writing, with frightened investor behaviour today no doubt exacerbated by the strong share price run of recent months. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Established markets in the mire

The FTSE 100 business advised inits upate that revenues rose by a disappointing 5% in the first quarter, to $1.2bn. This upswing was created by foreign exchange tailwinds, however, as underlying sales flatlined in the period.

This poor performance has led Smith & Nephew to hack back its sales estimates for the full year and it now expects underlying revenue growth to range between 2% and 3% in 2018. The firm added that its trading profit margin will now merely be “at or above that achieved in 2017.”

Just three months ago Smith & Nephew pencilled in a 3% to 4% improvement in underlying sales this year, as well as an uptick in the trading profit margin of between 30 and 70 basis points.

The London-based business noted that trading in its established markets had been particularly worrisome. These territories — responsible for almost 85% of group turnover in 2017, of which the US accounts for around half — saw underlying sales slump 2% in the three months to March.

Smith & Nephew attributed this reversal to “some softer market conditions and weaker performance in Advanced Wound Bioactives.”

Not all bad, though…

It’s not difficult to see why investor appetite has soured so spectacularly today, and additional share price reversals cannot be ruled out in the short-to-medium term as the momentum in its critical segment fades, even if outgoing chief executive Olivier Bohuon tried to put some a positive spin on things.

Bohuon, who will hand over on May 7 to former Alere CEO Namal Nawana, said: “We expect trading conditions to return to more normal levels, which, combined with the continued rollout of new products and our sustained emerging markets performance, gives us confidence in delivering an improving performance trend during the remainder of the year.”

Regardless of whether or not conditions pick up markedly in its established regions, I remain convinced that Smith & Nephew’s bounding progress in lucrative emerging markets provides plenty of reason for stock pickers to keep the faith, as I explained last time out.

The medical mammoth saw revenues in these territories rise an aggregated 15% during January-March, speeding up from the 12% advance punched last year. And underlying sales here rose 9% in the quarter, the company again noting “strong growth from China.

City analysts had been expecting earnings expansion of 1% and 8% in 2018 and 2019 respectively, figures that look sure to fall by the wayside following Wednesday’s statement. But Smith & Nephew’s long term investment case remains robust, and so neither the likelihood of some forecast reductions nor a current forward P/E ratio of 19 times would discourage me from investing today.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.