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This stock’s surged almost 10%! Should you buy it for your ISA?

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Investor appetite was quite tepid on Monday morning, with UK share markets flatlining from last week’s close. It’s no surprise, as Covid-19 uncertainty keeps all us ISA investors guessing. One share that’s not suffering from weak stock-picker appetite, however, is Pendragon (LSE: PDG).

The retailer’s shares are up close to 10% in start-of-week business, putting it at its most expensive for five weeks. News that Dietmar Exler, current chief operating officer of AMB Sports & Entertainment, has been parachuted in as an independent non-executive director has boosted hopes of a turnaround for the embattled auto seller.

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Exler has considerable expertise in the car industry. His former roles include president and CEO of Mercedes-Benz USA, as well as head of region at NAFTA Mercedes-Benz.

It’s the latest move intended to beef up Pendragon’s board. Bill Berman was appointed chief executive in mid-February following a run as the company’s interim chairman. Berman was previously head of AutoNation, the biggest car retailer in America.

Giddy!

No disrespect to Exler, but I fear today’s intense buying of Pendragon’s shares is a huge overreaction. The car giant’s problems are significant. I, for one, would want to see a significant upturn in market conditions before I buy it for my ISA. As it stands, news flow continues to get worse and worse.

Trade over at the FTSE 250 firm has long been in the doldrums. Brexit uncertainty has smacked demand from private and commercial customers in recent years. And the possibility of a no-deal withdrawal from the European Union at the end of 2020 casts a shadow over sales for much of the new decade.

The coronavirus outbreak has made the Brexit impact look like small potatoes though. Data from the Society of Motor Manufacturers and Traders showed new vehicle transactions collapsed by almost half in March. Latest figures on UK household finances suggest sales of big-ticket items like new and used autos will continue to struggle too.

According to IHS Markit, Britons’ sense of financial wellbeing has weakened to its worst since November 2011. A reading of 34.9 for April also represented the largest month-on-month drop since records began in 2009.

The letters ISA (Individual Savings Account) on dice on stacks of gold coins on a white background.

A poor ISA pick

In line with government guidance, Pendragon has shuttered all of its retail sites in Britain. It’s unclear when showrooms will be opened to the public again. But even when the doors are unbolted, there won’t be a throng of people flooding onto its forecourts if mass unemployment and widespread corporate failures materialise.

So forget about City forecasts that Pendragon will flip back into profits this year from 2019’s losses. Treat predictions of an 84% earnings boom in 2021 with a considerable pinch of salt.

The retailer’s cheap price, illustrated by a forward P/E ratio of below 9 times, reflects its high-risk profile for this year and beyond. There are much, much better shares to fill your ISA with today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pendragon. 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.

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