The stock market crash has produced many bargain shares. And well-known investors such as Warren Buffett usually shop for shares when they’re selling cheaper than they were.
Good-quality companies don’t often sell cheaply. It often takes a crisis such as this stock market crash to bring down valuations. And if we buy shares when they’re down, we have a chance of profiting when the recovery arrives.
How I’d aim for a million
I think buying cheaper shares is a decent strategy to help me aim for a million from the stock market. And one company I like the look of right now is Keystone Law (LSE: KEYS).
Before the crisis, the law firm had a good record of rising revenue. The profits were going up as well. And so was the cash flow. There was also a rising shareholder dividend yield.
On top of that, the share price rose by more than 170% over two years. But the stock market crash made the share price fall by just over 40%. It’s recovered a bit since, but the valuation is now much lower than it was before the crisis.
And if the valuation rates up again, this could be a good share to have in a millionaire-maker portfolio. But I’d diversify between several small-cap shares to reduce the risk we’re taking on with smaller companies. And I’d mix some mid-cap and FTSE 100 shares in as well.
Meanwhile, today’s full-year report from the “challenger” law firm reveals to us some decent trading figures. Revenue rose by more than 16% compared to the year before. And adjusted earnings per share shot up by nearly 12%. Strong incoming cash flow backed the profits.
But Keystone Law has cancelled the final shareholder dividend because of the coronavirus crisis. Nevertheless, the growth story is continuing. During the year, total fee-earning lawyers and other staff increased by just over 22% compared to the prior year.
The coronavirus crisis hasn’t much affected the firm’s billing and cash-generating abilities. But since the outbreak of the pandemic, there’s been a “meaningful” decline in the number of new instructions from customers. However, the directors reckon Keystone is in a “strong” position to deal with the financial and operational effects of the Covid-19 pandemic.
The company is one that’s still trading through the crisis but with some effects to the business. Hopefully, the set-back will prove to be temporary. And the stock will perhaps go on to recover, adding to the potential of my portfolio.
Meanwhile, there’s around £4.4m of cash on the balance sheet. And many of the costs are variable. So, if Keystone must lay off any staff, many costs will end as well. While the firm’s already set up for remote working, it’s also “diversified” across its markets.
Of course, it’s hard for the directors to predict the future. But they reckon Keystone will remain profitable and cash generative in the trading year to January 2021, despite the crisis. With the share price near 428p, the P/E rating is just under 29. That’s quite high, but not as excessive as it was before the crash. I’m tempted to by some of the shares now for my portfolio to help me aim for a million.
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Kevin Godbold has no position in any share 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.