Sirius Minerals shares are down 30% in six months. Is it time to buy?

Shares in Sirius Minerals plc (LON: SXX) have had a dreadful run. Do I think a rebound is on the cards?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Sirius Minerals (LSE: SXX) share price has had a disappointing run over the last six months, falling from just under 30p to around 20p today. That represents a fall of approximately 33%. Since early August, the shares are down nearly 50%.

Yet looking at the investment case for SXX, I’m really not surprised by the share price fall. Indeed, I’ve actually warned investors several times in the past about the dangers of investing in the stock, stating in September that it is a “risky investment.”

Jam tomorrow

There’s no doubt that Sirius offers an interesting story. Owning the world’s largest and highest-grade deposit of polyhalite – a key ingredient in fertiliser – the company has clearly captivated the imaginations of many UK investors. However, the problem with Sirius, in my view, is that it’s a classic ‘jam tomorrow’ type of stock. What I mean by this is that profits are still a long, long way off. That adds considerable risk for investors, as, without profits, there’s nothing to really support the share price. Recent news regarding a finance deal (or lack of) has hit the shares hard.

Even after the recent 30%+ share price fall, I’m not tempted to touch the stock. And one reason for this, on top of production and financing risks, is that short interest is quite high at the moment. According to shorttracker.co.uk, over 7% of the company’s shares are being shorted right now which essentially means that a number of hedge funds or sophisticated investors are betting that the stock will keep falling. As I’ve noted in the past, quite often, the shorters get it right. Just looked at what’s happened with highly-shorted stocks such as Carillion and Metro Bank in recent years.

With shorters targeting the stock, I’ll be continuing to steer clear of SXX shares for now.

Better growth stock

One growth stock I do hold in high regard is Gamma Communications (LSE: GAMA). Back in January, I listed the stock as one of my top small-cap stocks for 2019, and since then it has risen nearly 30% – a healthy gain. Over the last three years, it’s performed even better, rising over 120%.

Founded in 2001, Gamma company provides voice, data and mobile services for the business market, and its clients include Pret, British Heart Foundation, and Cathay Pacific. Unlike SXX, Gamma is a highly profitable company (ROE was 26% last year), and profits are rising at a prolific rate.

Just last week, the group released its full-year results for FY2018 and the numbers were excellent. Revenue was up 18% while adjusted EPS rose 31%. Cash generated by operations increased by an impressive 36%. Management also said that it is “positive about the outlook for the business in 2019 and beyond.

For FY2019, analysts are forecasting EPS of 35.6p per share, which at the current share price places Gamma on a forward P/E of 26.9. I think that’s a fair price to pay for this high-growth company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »