Will the Stagecoach share price continue to rise?

The Stagecoach share price is up 45% in the past year. Will the stock continue to rise? Royston Roche makes a deep dive analysis of the stock.

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.

The Stagecoach (LSE: SGC) share price rose about 45% in the past year. However, the shares are down about 50% from their December 2019 price level. The prime reason is the disruption to the company’s services due to Covid-19. However, with reopening, this could change.

Here, I will analyse the company to see if I should add the stock to my long-term portfolio.

Stagecoach company’s fundamentals

Stagecoach released its fiscal year 2021 results on 30 June 2021. Revenue was down 35% to £928.2m. The drop was primarily due to the lockdown. However, it was offset by new contract wins in the London area. With reopening, the company did experience some positive turnaround. For the week ending 26 June 2021, commercial sales were 68% of pre-pandemic levels. 

Stagecoach’s profit before tax fell to £24.7m from £40.6m for the previous year. The company also announced that it would not pay dividends this year. It has a net debt position of £312.6m compared to £352.1m for the previous year. This is still high in my view.

The company is targeting zero emissions for its UK bus fleet by 2035. In February, it completed one year of running two electric buses in Cambridge. In addition to low pollution, the buses have also enhanced passenger experience with a quieter and smoother journey. With global warming, investors, funds, and the general public are more environmentally conscious, which is positive for the company. It is also a key partner in UK’s first all-electric bus city, Coventry.

The Stagecoach share price – risks to consider

Stagecoach founders Sir Brian Souter and Dame Ann Gloag are expected to reduce their stake in the company to 5% from the current 27%. In my opinion, this is negative for the Stagecoach share price as the founders usually reduce the stake in a business when they are less optimistic about the company’s growth prospects.

The company’s current ratio is 0.93, which suggests that the company will face difficulty paying its current liabilities in the near term. It has long-term debt of £406.6m and pension liabilities of £263.8m. The total equity on the balance sheet is only £61m. The company got an extension to its loan repayments previously because of the lockdown. However, if the company’s financial performance does not increase, then it could find it difficult to pay its debt on time. 

The company’s plan to electrify its fleet is positive. However, it could involve capital investments. Also, it is too early to know the practicality of electric vehicles and the cost of running the vehicles. This could reduce the company’s profitability.

Final view

I believe that the Stagecoach share price might continue to rise as it will benefit from the reopening of the sectors. However, I am not yet fully convinced to buy for my long-term portfolio since I am worried about the balance sheet. So, for now, I would keep the stock on my watchlist.

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.

Royston Roche 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »