The Motley Fool

Johnson Matthey share price is down 25%! Time to buy?

Image source: Getty Images.

With its share price falling by 25% in the year to date, Johnson Matthey (LSE: JMAT) might now be on the radar of value investors. 

I think it is worth investigating whether the stock is currently trading at bargain buy levels or if the shares are a dangerous value trap.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Johnson Matthey’s falling share price

The FTSE 100 index has been rocked by the Covid-19 pandemic. In the year to date, the index has fallen by 16%. Why has Johnson Matthey’s share price dropped by so much more than the index? 

Johnson Matthey is a global leader in sustainable technologies, with a history that dates back over 200 years. 

The company dominates the market. For example, one in every three new cars is fitted with an emission control catalyst produced by Johnson Matthey. The company’s catalysts stop approximately 20m tonnes of pollutants every year. Its products are also used in pharmaceuticals, chemicals, batteries, and medical products.

Despite its strong position in the market, the prediction is that the full-year group operating performance will not meet the expectations of the market. CEO Robert MacLeod stated that this is due to a “deterioration in some of our end markets”. However, he also noted that Johnson Matthey was “on track to deliver results in line with market expectations this year, prior to developments with Covid-19”. 

Falling car sales following the coronavirus lockdown will affect Johnson Matthey’s revenue. Numerous automotive manufacturers paused productions, which lead to the business closing some of its Clean Air plants.

However, it is not all bad news for JMAT, with parts of the business more resilient to the economic fallout of coronavirus. These sections include its pharmaceutical, health, and agricultural operations. Although services for these sectors are continuing, there have been some delays in shipments. 

Bargain buy or value trap?

As tempting as a major slump in share price looks, investors should ensure they are not falling into a value trap.

Johnson Matthey firmly falls into the FTSE 100 bargain buy category, I believe. The shares are trading at a price-to-earnings ratio of just over 9. As fellow-Fool Cliff D’Arcy points out, the Johnson Matthey share price is trading at a nine-year low. To me, there is now a rare opportunity to buy the stock at a discount.

I think the market has undervalued Johnson Matthey’s share price. The company has a strong balance sheet, with £250m of unrestricted cash and a £1bn revolving credit facility in place until March 2025. 

Johnson Matthey also benefits from a diverse range of revenue streams. Hopefully, this will enable the company to ride out other macro-economic blips and might offer a prudent investor a wide margin of safety.

For a long-term FTSE 100 investor looking to maximise returns, I believe Johnson Matthey’s share price is a great bargain buy.

Are you looking for other growth shares?

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

T Sligo 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.