Despite a P/E of 5, this stock is no bargain

This low price-to-earnings stock could be a value trap.

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.

Revenues continued to decline at Trinity Mirror (LSE: TNI) last year, slipping from £375m in FY2016 to £320m in FY17. The structural decline of print journalism is no secret, but there was good news in the latest earnings report too and we saw a muted 0.5% share price rise this morning.

Profit held up better than revenues, falling 12% to £47.3m. Digital revenue grew 5.9% to £41.4m, but that increase is nowhere near enough to cover falling distribution and advertising revenues elsewhere.

The company exceeded its cost savings target, cutting £15m costs out of the business when the original target was only £10m. Net debt reduced to a tiny £22.4m, while the pension deficit fell by £59.2m to £406.8m, likely thanks to an increase in interest rates.

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

A combination of solid cash flow and balance sheet strengthening meant the company increased its interim dividend payments by 7.1% to 2.25p per share. If the final dividend is increased by the same amount, the shares offer a prospective 5.5% yield.

Uncertain Future

The company also bought back £4.6m worth of shares over the period. I find returning so much capital to shareholders a little odd when the existing business model is under strain.

I see no point in buying a structurally declining business only to have management hand a portion of your capital back to you. In my opinion, I’d prefer to see money directed towards the best opportunities for new revenue streams. 

To be fair to Trinity, there is a strategy to find new sources of income and the company has had successes. Take the successful launch of ‘Live’ branded sites. These are digital one-stop shops for all things relating to a city, like breaking news, local sport, entertainment, events, local interest, traffic and travel, plus what’s on, and they’ve attracted a lot of page views.

Reinvestment Opportunities

Value investors may find their interest piqued by the company, which now trades on a PE of around five, well below market averages. Of course, this ratio is largely useless when valuing businesses with structurally declining revenues and earnings. If earnings halve, the PE becomes 10, for example. As a long-term investor, I’m not sure that Trinity has found the remedy for its sector-caused ailment, so I will be avoiding the shares.

If I had to invest in a print journalism business, I’d probably choose Daily Mail & General Trust (LSE: DMGT). The company has managed to increase revenue by 7% in Q3 this year. This is thanks to the diversified nature of the business and the prestige of the company’s media assets. 

Last year, the firm generated 53% of revenues from B2B services, largely through providing high-value data to the insurance, property, energy, education and finance sectors. The company also operates a number of events that in total generate half a million visitors per year and over 13,000 exhibitors. I’m a fan of trade shows because of the attractive industry dynamics. 

In the age of video conferencing, events have held up surprisingly well. As professionals continue to rely on the business they do at trade shows and conferences, the most successful events can expect repeat custom from every essential name in the industry. 

The shares change hands on a PE of 11 and yield 3.5%, which seems a fair price considering MailOnline.com is one of the most visited English language websites in the world.

However, don’t buy any shares just yet

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Secure your FREE copy

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.

Zach Coffell has no position in any 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.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Have I left it too late to buy Nvidia shares?

When the whole world was racing to buy Nvidia shares, Harvey Jones decided they were overhyped. Does the recent dip…

Read more »

Dividend Shares

I asked ChatGPT to pick me the best passive income stock. Here’s the result!

Jon Smith tries to make friends with ChatGPT and critiques the best passive income pick the AI tool suggested for…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Hargreaves Lansdown’s clients are buying loads of this US growth stock. Should I?

Our writer's noticed that during the week after Christmas, many investors bought this US growth stock. He asks whether he…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Greggs shares plunge 11% despite growing sales. Is this my chance to buy?

As the company’s Q4 trading update reveals 8% revenue growth, Greggs shares are falling sharply. Should Stephen Wright be rushing…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Will ‘biggest ever Christmas’ help keep the Tesco share price climbing in 2025?

The Tesco share price had a great year in 2024. And if 2025 trading continues in the same way, we…

Read more »

Investing Articles

This dirt cheap UK income stock yields 8.7% and is forecast to rise 45% this year!

After a disappointing year Harvey Jones thinks this FTSE 100 income stock is now one worth considering for investors seeking…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

With much to be cheerful about, why is this FTSE 250 boss unhappy?

JD Wetherspoon, the FTSE 250 pub chain, is a British success story. But the government’s budget has failed to lift…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

2 huge investment risks I’m worried about in 2025

Ken Hall looks at two big investment risks that are keeping him up at night as we enter 2025 with…

Read more »