After 20% price jump, is this cash-rich stock a buy to beat Bitcoin?
Investing in Bitcoin might be madness, but gamblers are trading in it all the time. And many are betting on Bitcoin without buying or selling a single coin instead, they go for a contract for difference (CFD), which allows you to bet on where a price is going next.
Bitcoin is just one asset for which Plus500 (LSE: PLUS) offers CFDs, and its Bitcoin page currently cautions its customers with: Warning! Cryptocurrencies are extremely volatile. If thats not enough, Plus500s site carries a banner stating the fact that 76.4% of retail investor accounts lose money when trading CFDs with this provider. But the punters still flock in.
Plus500 has not been without its problems, and its share price crashed in February for a number of reasons that my colleague Paul Holmes recently explained.
Profits for 2019 are expected to come in way below last years figures, and that was emphasised by Tuesdays first-half results. With revenue for the six months to June down 68%, EBITDA slumped by 80% and earnings per share dropped by the same proportion.
What might hurt the most is an 80% cut to the interim dividend, with the company speaking of a revised distribution policy introduced from next reporting date [H2 2019], to return 60% of net profit to shareholders, with at least 50% of this core distribution being through dividends.
With the second quarter outperforming the subdued first quarter, and that improved level of trading carrying on into the third quarter, the second half looks like it should be better than the first. With that in mind, I think its likely well still see a full-year ordinary dividend yield of 8% or better.
The markets reacted well and pushed Plus500 shares up more than 20%, but were still looking at a forward P/E multiple of only 6.8 based on full-year forecasts. And this isnt a company with any debt. No, its a cash-rich company that has a strong operating cash conversion rate and I wouldnt be surprised to see an extra chunk of cash handed back to shareholders as a year-end special dividend.
But theres risk. Fellow Fool writer Roland Head has described the companys business model as opportunistic, and it certainly does benefit when there are speculative bubbles in the news, like the current Bitcoin excitement. When markets are smoother and theres no get-rich-quick craze in the news to attract the gamblers, demand for CFDs wont be as strong.
Bitcoin is far from the only game in town, and any stock market volatility will attract CFD punters, but it is a prime example. The pretend money has had a very strong 2019 so far, but the price has started to turn down in the past few days. And thats likely to fuel new speculation about the next trend in the chart just a blip on the upward path, or is it the start of a slide?
Plus500 is in a highly regulated industry too, and though CFD rules have already been significantly tightened, theres always a risk of further regulatory restrictions.
For those reasons, Plus500 isnt dull and boring enough for me yet Id put it way ahead of Bitcoin as an investment. But always remember the 76.4% of punters who lose money to Plus500.
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