Will Quindell Plc Rise 30% This Week?

This Fool would comfortably hold shares of Quindell (LON:QPP) as part of a diversified portfolio at this price.

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.

Quindell  (LSE: QPP) may surprise investors on Thursday when it reports interim results for the six months to 30 June — but will its shares rise more than 30%, just like they did in mid-July? 

quindell

Quindell is a hard call to make. On the one hand, it’s tempting to suggest that its stock, at this price, should be included in a diversified portfolio. It is incredibly volatile, true, but it might turn out to be a once-in-a-lifetime opportunity. On the other hand, and unfortunately for Quindell shareholders, corporate governance and cash flow pose more questions than answers when it comes to assessing the investment case.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Trading Below Fair Value

The company’s current assets are worth about 124p under a base-case scenario, for a 28% discount to Quindell’s stock price of 174p. Based on the value of Quindell’s total assets, and making certain assumptions, Quindell stock trades at a 17% discount to fair value, according to my calculations. The shares deserve attention, in my view. 

There are problems with the business. The cash flow statement signals massive swings in account receivables, while poor working capital management indicates that the group can’t self-finance its short-term operations but must rely on external funding options to operate as a going concern.

The failure to pursue a listing on the main stock exchange in the UK wasn’t easy to digest for shareholders, particularly because it left Quindell with limited funding options. Faced with stiff competition, this insurance claims processor may find it difficult to raise new funds if its cash flow doesn’t grow at a faster pace. In fact, refinancing risk is an issue, given that Quindell’s debt maturity profile isn’t reassuring — although Quindell stated that its resources would suffice to meet budget requirements.

All these elements are already priced into its shares, though. 

Valuation

Quindell stock trades at 2.5x and 1.5x adjusted operating cash flow for 2014 and 2015, respectively. Revenues are expected to double in the next couple of years, but Quindell’s sales multiple is a low 0.6x into 2015, which doesn’t really reflect the full potential of a business whose accounts show hefty operating margins and a steep growth rate all across the P&L.

These trading multiples indicate distress, rather than a growth story. Quindell stock may well be oversold. The group has recently reiterated the view that : a) revenues of up to £900m will be achieved this year, which points to a steeper growth rate in the upcoming months; b) the speed at which credit are collected is getting better.

There is talk that its key joint venture with RAC may implode but that, too, is priced into Quindell stock — a stock that is not for the faint-hearted. 

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won’t want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we’re giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

£10,000 invested in BP shares 10 years ago is now worth…

BP shares have slumped by around a quarter since spring 2015. But could the FTSE 100 oil giant be about…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Is this one of the best FTSE 100 stocks to buy right now?

Growing market panic is supercharging demand for safe-haven FTSE 100 stocks. Here's one I think could keep surging in price.

Read more »

Abstract 3d arrows with rocket
Investing Articles

Are these the best UK defence stocks to consider buying right now?

Looking for the best UK stocks to buy today? Investors should consider these defence contractors as we move towards a…

Read more »

Investing Articles

Just released: our 3 best dividend-focused stocks to buy before May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

This FTSE small-cap stock could rise 61%, according to experts

A once-popular FTSE AIM stock has lost nearly half its value inside the past 12 months. Is it now worth…

Read more »

Market Movers

Here’s my preview for Tesla stock, down 5.75% yesterday, with earnings due today

With the quarterly earnings due out today, Jon Smith runs through three key points that he's watching out for that…

Read more »

Investing Articles

The 2025 market sell-off is a brilliant opportunity to build retirement wealth in a SIPP

Harvey Jones is scouring the FTSE 100 for bargain stocks to put inside his SIPP, and says this easily overlooked…

Read more »

Growth Shares

£350 a month invested in a Stocks and Shares ISA could be worth this much in 2030

Jon Smith explains a growth strategy for a Stocks and Shares ISA portfolio focused on investing in areas including AI…

Read more »