When UK shares dip sharply, I tend to pay attention to see if they could be good buys for a recovery.
Two options I want to take a closer look at are B&M European Value (LSE: BME) and YouGov (LSE: YOU).
Let’s check what’s happened, and break down their investment cases to help me decide.
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B&M
Discount retailer B&M has been on my radar for some time. The business has been on a remarkable growth journey for many years.
However, the shares are down 13% over a 12-month period from 536p at this time last year, to current levels of 464p. A sharp drop in June was caused by a mixed trading statement.
At the time, I thought that the reaction to the earnings update was overcooked. I stand by that view. The biggest issue was flat operating cash flow and adjusted earnings.
From an investment perspective, I’m a fan of B&M shares and would definitely look to snap up some shares when I next can. It’s now an even more attractive prospect due to a better entry point.
The way in which B&M continues to dominate supermarket giants, as well as continue to grow, is not to be sniffed at. It has made the most of the recent cost-of-living crisis. Plus, let’s face it, who doesn’t like a bargain!
At present, the shares trade on a price-to-earnings multiple of 12. Furthermore, a dividend yield of 7% – albeit slightly inflated by a falling share price – sweetens the pot. However, I do understand that dividends are never guaranteed.
From a bearish view, competition in the grocery sector is intense. This includes the so-called big four, as well as challenger supermarkets, Aldi and Lidl. With consumers looking for more bang for their buck, these firms have put a huge emphasis on budget ranges. As B&M only offers branded premium goods, albeit at discount levels, there’s potential for earnings and returns to be dented.
YouGov
Market research industry-leader YouGov experienced a mammoth 46% drop in one day last month due to a profit warning. I must admit, prior to that, the firm was on my radar anyway, but this piqued my interest even further.
The shares are down a huge 58% over a 12-month period from 1,055p at this time last year, to current levels of 440p. Ouch!
YouGov reported that revenue would come in 5% lower than expected. Not the end of the world. But, wait for it, earnings would come in 32% lower! This is a prime example of forecasts being way off the mark. It’s also why I always take them with a pinch (or in this case, a bucket) of salt.
There is plenty of meat on the bones to suggest a recovery could occur. Its dominant market position, as well as past track record, can’t be ignored. Plus, the rise of artificial intelligence (AI) and how YouGov could capitalise and use this to grow earnings and returns, is something I’m taking into account.
However, after recent events, as well as a lot of debt on its balance sheet, I’m not convinced.
I’m going to keep an eye on developments, but I won’t buy YouGov shares right now.
