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Metro Bank share price rebounds 65%! Here’s what I’d do now

The Metro Bank (LSE:MTRO) share price has been reanimated from what looked like certain death a couple of months ago. But is this a dead cat bounce or the sign of a long and steady climb back to glory?

Share price highs of 2,300p just a year ago are a distant memory. Even with the recent jump, the bank’s shares have still lost 87% of their value across the year.

Right now, Metro Bank is trading at a price-to-earnings ratio of 6.7, a bargain by anyone’s estimation. Is there really value here for investors not already committed to the challenger bank?

Phoenix from the flames

Talk of a takeover by Lloyds has offered a lifeline to the scrappy contender.

In recent days the Metro Bank share price has enjoyed daily hikes of between 5% and 15%, a significant boost to the now £482m market cap.

Rumours that the FTSE 100 favourite was interested in taking Metro Bank’s 1.9m customers off its hands have clearly given shares quite a bump.

Late September saw prices fall to the bottom of a deep, dark well, trading in the range of 166p. Since then, the shares have seen a remarkable turnaround, hiking almost 70% back to the 265p mark.

In my estimation this is a case of “buy the rumour, sell the news“. It’s pure speculation that a UK high street bank will swoop for the struggling challenger. Investors are opening positions in the hope of making a quick profit once news of a buyout bid hits the wires.

There are long-term, stable 7% yields available elsewhere, if you’re willing to look. Is Metro Bank really the same kind of opportunity? The chance to double your money in short order? I think not and here’s why.

Price it up

CEO Craig Donaldson has had a shocking 2019, it’s fair to say.

First there was the debacle over the bungling of commercial loan ratings back in January, an accounting slip-up that wiped millions from the bank’s value. Then there was the small matter of an 80% slump in pre-tax profits across the first half the year.

There was the abject failure of September’s attempted £200m bond issue. The market just wasn’t interested in loaning cash for a portion of Metro Bank’s future, despite a healthy 7.5% yield on the bond. Signs were not good that Metro would stay alive.

But Metro managed to scrape together £350m in senior debt in early October, only with the proviso that founder and chairman Vernon Hill would quit. That gives the bank some breathing room. And Q3 results reported on 23 October offer some hope of recovery, with the bank adding 106,000 new customers across the quarter.

How to spend it

Investors need to think and plan very carefully if they are going to make money in this stock market. After all, every purchase comes with its own opportunity cost. Our money is not unlimited, and when we buy one share, that takes that cash out of the equation.

When I last covered Metro Bank, the shares had plummeted by 40% in a week. I said then I would avoid it like the plague. My opinion hasn’t changed. There’s far too much risk in here for my liking.

Buying Metro Bank shares now would be pure FOMO — Fear Of Missing Out — and that’s simply not the way to get richer.

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Tom has no position in 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.