FTSE 250 stocks Cineworld (LSE: CINE), Finablr (LSE: FIN), and Future (LSE: FUTR) have crashed 52%, 68%, and 27% in less than three weeks. Furthermore, they’re down 73%, 89%, and 35% from their 52-week highs. Tempted?
I believe bargain hunters would be unwise to pick up these particular stocks. Here’s why I’d continue to avoid them like the plague.
The spread of the coronavirus hasn’t prevented me seeing long-term value in a number of stocks in the hard-hit travel and leisure sector. However, I’m afraid Cineworld isn’t one of them.
I’ve had a slate of concerns about the company for some time. These include its entry into the structurally declining North American market, the massive debt it’s taken on, the firm’s accounting, and the independence and robustness of its non-executive oversight.
News this week has only added to my concerns. The company revealed a massive share sale. The sale was made to meet a margin call on a loan taken out by an entity connected with Cineworld’s CEO, Moshe Greidinger, and Deputy CEO, Israel Greidinger.
I take a dim view of directors who pledge shares in this way. I think it blurs the line between their personal interests and the interests of the company. As part-owners of the business, shareholders should always be confident that management’s interests are aligned with their own.
Margin calls on loans are just one feature of a whole can of worms that has opened up for FTSE 100 company NMC Health, and its now-resigned chair, Dr. B.R. Shetty, and his associates. The latest news from NMC, announced yesterday, is that its true debt is billions of dollars higher than last shown on the company’s balance sheet.
I’m not surprised that the share price of Finablr – a payments and foreign exchange platform – has been hammered as the NMC story has unfolded. Shetty is the founder, major shareholder, and co-chair of Finablr. Several Shetty family members and associates sit on the company’s board.
A huge number of the Shetty family’s shares in Finablr have been pledged as security for borrowings. The board recently confirmed its “full support for the company’s executive management team.” Personally, I’d err on the side of scepticism.
Global multi-platform media company Future is a seemingly fast-growing business, pursuing an aggressive buy-and-build strategy. I’m always a little cautious about such acquisition-led strategies. It’s often very difficult to confirm whether the underlying performance of the business is as management claims it is.
I see plenty to be concerned about in a research report on Future, published by short-seller ShadowFall earlier this year. ShadowFall calculates Future’s underlying growth as far weaker than reported by the company’s management.
It questions Future’s “interconnected” management team, its frequently changing and increasingly generous management reward structure, and “whether management are incentivised to invest the company’s capital in creating long-term shareholder value or to conduct M&A in meeting short-term financial targets.”
I have doubts about the performance of the business, and whether management’s compensation is aligned with the interests of long-term shareholders. Enough doubts, at any rate, to put me off becoming one.
A lack of full confidence in management is a deal breaker for master investor Warren Buffett. And this is why I’m content to avoid Cineworld, Finablr, and Future.
It’s ugly out there…
The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.
And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.
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G A Chester 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.