Many FTSE stocks have pulled back in recent months due to macroeconomic issues as well as geopolitical factors. I believe there could be some bargains out there to boost my portfolio.
One small-cap stock I am considering is XL Media (LSE:XLM). Is now a good time to buy the shares for my holdings?
Website producer
As a quick introduction, XL is a leading digital publishing business, responsible for operating over 2,000 websites. These websites publish content across a variety of industries including sport, betting, personal finance, and more.
So what’s happening with the XL share price currently? As I write, the shares are trading for 29p. At this time last year, the stock was trading for 55p, which is a 47% decline over a 12-month period.
To buy or not to buy
As a penny stock, XL is more susceptible to risks than larger, more established businesses. Nevertheless, I will look at the pros and cons of adding the shares to my holdings.
FOR: XL’s performance recently is a positive for me, although I am aware that past performance is not a guarantee of the future. Last month, XL reported that for the year ending 31 December 2021, revenue, operating profit, EBITDA, and cash generation were all up compared to 2020. This was primarily due to the market for advertising and marketing returning to normal levels after the pandemic. Although the pandemic isn’t fully behind us, the future could be fruitful if XL can continue its recent trading momentum.
AGAINST: Current macroeconomic headwinds such as inflation could have a detrimental impact on performance for XL. With inflation soaring, there is a chance that businesses could cut costs and marketing and advertising departmental budgets could come under pressure. This is a tangible risk for many FTSE stocks.
FOR: I like the look of XL’s business model. It has a vast profile and presence with operations throughout the world. It supplements this with regular acquisitions that can boost its offering and profile. In turn, this can boost performance and shareholder returns too. I also noted that CEO Stuart Simms purchased shares last month. I am buoyed when insiders buy shares, as they are the best placed to know if a firm is on the track to success. If the CEO is willing to buy shares with his own cash, this may be an indicator that perhaps I should too.
AGAINST: Although XL has an appetite and history of acquisitions, there is always the risk of one not working out. Two primary reasons are a lack of synergy between the two businesses and overpaying for a business. These can often lead to messy and expensive separations if, for example, XL had to dispose of a business that did not amalgamate well into its offering.
A FTSE stock I would buy
Looking at other factors, XL Media shares look decent value for money currently on a price-to-earnings ratio of just 14.
Furthermore, the advertising and marketing world is bouncing back from a lull in activity due to the pandemic. These activity levels are expected to continue on an upward trajectory. The positives outweigh the negatives for me. Due to this, I would be willing to add a small number of XL shares to my holdings.
