Online contracts for difference (CFD) provider Plus500 (LSE: PLUS) released an upbeat quarterly update today that was ahead of market expectations. In fact, the company’s top line grew to $82m in the last three months from $60m in the same period a year earlier, with higher levels of market volatility being a key reason why the number of active customers rose from around 50,000 to over 67,000 in the quarter. And, with the company expecting to ramp up its marketing spend moving forward, its top line could continue to rise over the medium term – especially if market volatility remains relatively high.
Growth Potential
In fact, Plus500 has excellent forecasts, with the company expected to increase its bottom line by 9% in the current year, and by a further 14% next year. Despite this rate of growth being considerably higher than that of the wider index, Plus500 trades on a very appealing valuation. For example, it has a price to earnings (P/E) ratio of only 11.1 which, when combined with its growth prospects, equates to a price to earnings growth (PEG) ratio of just 0.7. This indicates that its shares offer growth at a reasonable price and could move significantly higher, even though they have already risen by 22% this year.
Diversity
Of course, Plus500 is very much a pure play CFD provider and, as a result, lacks the diversity that a number of other financial services companies can offer. For example, Santander (LSE: BNC) (NYSE: SAN.US) is one of the largest banks in the Eurozone and has a large degree of diversity, both in terms of the services it offers and also the regions in which it operates. As such, it should offer a relatively stable shareholder experience – especially after it beefed up its balance sheet via a €7.5bn placing recently.
Combination
As such, Santander could provide a degree of stability alongside Plus500 within a portfolio, which could help to smooth out the inevitable lumps and bumps that are part and parcel of being a CFD provider. And, with Santander also offering earnings growth of 14% this year and 13% next year, it trades on a PEG ratio of just 0.9, which indicates that its share price could move significantly higher over the medium to long term.
Furthermore, a combination of Santander and Plus500 would offer excellent income prospects. The two companies currently yield 3.3% and 5.4% respectively from very undemanding payout ratios of 41% and 60% respectively. This, when combined with their strong growth numbers, means that they could deliver excellent long term income for their investors, as well as share price appreciation and, with Santander in the mix, a more stable shareholder experience. Therefore, a combination of the two stocks within a portfolio seems to be a logical move.
