The last couple of months have been relatively strong for the FTSE 100 index. However, not all its constituents have enjoyed upward trajectories. In particular, the advertising and marketing giant WPP (LSE:WPP) has seen its share price crash following its latest results after already heading south since December. As a result, the shares are now a third cheaper than a few months ago.
But as an investor who loves a good bargain, is this potentially a long-term buying opportunity? Let’s take a closer look at what’s going on.
Underwhelming results
Going into WPP’s full-year results for 2024, investor sentiment seemed to be quite positive. After all, the firm’s been busy throughout the year securing new accounts and opportunities with global titans such as Amazon, Unilever, and Starbucks, among others. And yet despite this progress, growth still fell short.
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Like-for-like revenue in the fourth quarter shrank by 2.3%, a big part due to a 21.2% slowdown in China. And, consequently, this caused the group’s overall sales less pass-through costs to shrink 4.2% year-on-year. To make matters worse, management’s guidance for 2025 indicates further contraction could lie ahead, with underlying revenue growth expected to be flat or fall by 2%.
Considering analyst forecasts were anticipating growth guidance of at least 1.7%, investors were understandably less than pleased. And even at this level, that’s still lower than WPP’s medium-term target of delivering 3% annualised organic growth. With all that in mind, the stock’s sell-off starts to make sense.
It’s not all bad news
One bright spot in the report was the welcome improvement in operating margins, which expanded slightly from 14.8% to 15%. That’s despite a £250m investment in developing its artificial intelligence (AI) platform WPP Open.
Digging deeper, WPP’s made encouraging progress on its goal to deliver £125m of annualised savings by the end of 2025, with £85m already realised in 2024. Consequently, cash generation improved, growing free cash flow by 17% to £738m. Total borrowings fell from £4.7bn to £4.3bn, while cash & equivalents were topped up to £2.6bn from £2.2bn.
The end result is a stronger balance sheet, offering management more flexibility to execute its strategy. And following the slide in valuation, this FTSE 100 stock’s actually looking pretty cheap with a price-to-earnings ratio of just 13. By comparison, the average across Europe’s closer to 21 as of January.
Time to consider?
While WPP shares appear undervalued, the sell-off’s been driven by a failure to meet expectations, which aren’t exactly very high to begin with. Organic growth remains far behind where management promised. And while the steady recovery of economic conditions worldwide is a welcome catalyst for growth, I think it would be prudent to consider waiting until management’s able to demonstrate more progress.
