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After 20% price jump, is this cash-rich stock a buy to beat Bitcoin?

Investing in Bitcoin might be madness, but gamblers are trading in it all the time. And many are betting on Bitcoin without buying or selling a single coin — instead, they go for a ‘contract for difference’ (CFD), which allows you to bet on where a price is going next.

Bitcoin is just one asset for which Plus500 (LSE: PLUS) offers CFDs, and its Bitcoin page currently cautions its customers with: “Warning! Cryptocurrencies are extremely volatile.” If that’s not enough, Plus500’s site carries a banner stating the fact that “76.4% of retail investor accounts lose money when trading CFDs with this provider.” But the punters still flock in.

Plus500 has not been without its problems, and its share price crashed in February for a number of reasons that my colleague Paul Holmes recently explained.

First half

Profits for 2019 are expected to come in way below last year’s figures, and that was emphasised by Tuesday’s first-half results. With revenue for the six months to June down 68%, EBITDA slumped by 80% and earnings per share dropped by the same proportion.

What might hurt the most is an 80% cut to the interim dividend, with the company speaking of a “revised distribution policy introduced from next reporting date [H2 2019], to return 60% of net profit to shareholders, with at least 50% of this core distribution being through dividends.

With the second quarter outperforming the subdued first quarter, and that improved level of trading carrying on into the third quarter, the second half looks like it should be better than the first. With that in mind, I think it’s likely we’ll still see a full-year ordinary dividend yield of 8% or better.

Price jump

The markets reacted well and pushed Plus500 shares up more than 20%, but we’re still looking at a forward P/E multiple of only 6.8 based on full-year forecasts. And this isn’t a company with any debt. No, it’s a cash-rich company that has a strong operating cash conversion rate — and I wouldn’t be surprised to see an extra chunk of cash handed back to shareholders as a year-end special dividend.

But there’s risk. Fellow Fool writer Roland Head has described the company’s business model as opportunistic, and it certainly does benefit when there are speculative bubbles in the news, like the current Bitcoin excitement. When markets are smoother and there’s no get-rich-quick craze in the news to attract the gamblers, demand for CFDs won’t be as strong.

Volatility

Bitcoin is far from the only game in town, and any stock market volatility will attract CFD punters, but it is a prime example. The pretend money has had a very strong 2019 so far, but the price has started to turn down in the past few days. And that’s likely to fuel new speculation about the next trend in the chart — just a blip on the upward path, or is it the start of a slide?

Plus500 is in a highly regulated industry too, and though CFD rules have already been significantly tightened, there’s always a risk of further regulatory restrictions.

For those reasons, Plus500 isn’t dull and boring enough for me — yet I’d put it way ahead of Bitcoin as an investment. But always remember the 76.4% of punters who lose money to Plus500.

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Alan Oscroft 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.