CMC Markets (LSE:CMCX) is a constituent of the FTSE 250 index. It is an online trading platform, offering tools for trading multiple contracts for difference (CFDs). Today, the share price has fallen over 21%. Currently trading at 261p, what’s the reason for today’s price drop? Is it a good time to buy the dip? Let’s take a closer look.
Why the dip?
Shares in CMC Markets plunged today after the release of results for the year ended 31 March 2022.
Looking closely at the financial results, it’s clear to me that the company has failed to meet expectations that have only risen since the pandemic struck in March 2020. Pre-tax profit fell by 59% to £92.1m. Furthermore, net operating income declined by around 31% to £281.9m.
While these figures seem to be disappointing, I’m not entirely sure the 21% price drop is warranted. These results merely show a return to pre-pandemic levels.
During the worst of the pandemic, when remote working was the norm and the furlough scheme was in full flow, CMC Markets and other online trading platforms attracted many new customers.
This was largely due to many people having more time and spare cash with which to trade. Furthermore, the pandemic brought significant volatility to the stock market.
All of these factors led to surging revenue and profit for the company, although I think the leadership probably knew this trend couldn’t last forever.
What next?
There are immediate consequences from these results. The firm has cut its total dividend to 12.38p from 30.63p per share.
While it may be disappointing to have a smaller income stream from this stock, at least I understand the reasoning behind the cut.
There is also the possibility that more people simply lose interest in online trading, or that a lack of market volatility results in declining results over the longer term.
I think that both of these risks are unlikely, given that the number of leveraged active clients is still 12% higher than pre-pandemic levels.
Additionally, recent events like the war in Ukraine have led to greater market volatility.
The business also reported in March that it was in a “robust capital position” and initiated a £30m share buyback scheme. This solid financial base is attractive to me, as a potential investor.
The company has also forecast a 30% increase to net operating income in the next three years. CEO Peter Cruddas believes that “new technology” will help to create more efficient systems and reduce transaction costs, potentially resulting in greater income and more clients.
Overall, the decline today and in the past year seems a bit extreme to me. After all, the firm has pretty much maintained pre-pandemic levels and could build on this. I will be buying shares in this business in anticipation of future growth.
