Do these crashing FTSE share prices mean we should buy?

Some FTSE share prices are soaring, while others are crashing. Share price volatility is to be expected, but should we buy the risers or the fallers?

| 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 stock market is looking fairly stable, perhaps surprisingly so. But some individual FTSE share prices are gyrating wildly.

On Tuesday, we saw several share prices soaring by 30% and more. At the same time, there were double-digit drops too.

Which should we go for, the ones that look like they’re recovering? Or the fallers, which might have bigger rebound potential?

Volatile share prices

Cineworld Group (LSE: CINE) has been one of the biggest victims of the coronavirus crash, losing almost 90% of its value at one point. It’s been erratic too, but it has bounced back to a slightly less painful loss of 64% during the crisis.

The share price actually perked up when the markets opened on Tuesday, gaining an early 12%. But it turned down soon after, and stands 11% down as I write, putting it among the losing FTSE share prices of the day.

Like many, Cineworld has suspended its dividend during the pandemic crisis. Some investors will see that as really bad news, but I reckon it’s exactly the right thing to do. Companies should be focusing firmly on their balance sheets and their long-term survival, not on pleasing the short-term City folks who want this year’s cash in their pockets.

So, avoid or buy? At today’s price, Cineworld shares are on a trailing P/E of only around four. If the lockdown ends soon and Cineworld gets back to business, there could be a nice recovery profit here.

But at year-end, Cineworld was sitting on $3.5bn in debt, for a debt-to-EBITDA ratio of 3.4. And that could bite. I see far less risky shares elsewhere in the FTSE.

Oil & gas contrarian?

The collapsing oil price has hurt the sector, and could lead some of the smaller and heavily indebted operators going bust.

But, hit by a pandemic slump along with the rest of the FTSE oilies, Enquest (LSE: ENQ) has been bucking the downward trend in the past couple of weeks. It was among Tuesday’s losing share prices with a 12% drop, but it’s gained close to 50% since a low at the end of March.

It should get a boost from the Opec agreement to cut global output and shore up prices. There hasn’t been much of an effect yet, mind, with a barrel still commanding only around $32. But the price could start to gain fairly soon, once the world’s surplus starts to reduce.

Enquest has, in its favour, an operating cost that averaged only $21 per barrel last year. And that should give it a little breathing room while prices are down.

FTSE gamble?

But Enquest’s big problem, like so many smaller oil companies, is debt. It stood at $1.4bn at year-end, though that represents a modest debt-to-EBITDA ratio of 1.4.

I think Enquest could turn out to be a profitable investment, if oil prices recover far enough before it starts to feel the financial pinch. If not, could we see the firm turning to the markets for a new equity issue?

Enquest is a gamble for the brave, though I don’t invest in the hope of simply getting lucky myself.

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.

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.

More on Investing Articles

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »