Image supply: Getty Images
With hundreds of UK shares to select from, traders are spoilt for selection. However, with so many potential companies to purchase, it may be fairly formidable to know the place capital ought to be allotted. And usually, novice traders fall prey to the herd mentality. After all, if everybody else is shopping for shares in a enterprise, it have to be a no brainer purchase, proper?
Looking on the record of most purchased shares on Hargreaves Lansdown’s platform, the three hottest shares on the London Stock Exchange proper now are John Wood Group (LSE:WG.), Rolls-Royce and AstraZeneca. But this begs the query, are they really good investments?
Generally talking, standard shares seldom ship the very best returns. Rolls-Royce actually appears to defy that logic, with shares up nearly 140% within the final 12 months. But with a lot progress already below its belt, the chance to revenue could have already handed.
All of that is to say that blindly shopping for what’s standard isn’t a sound funding technique. And a better inspection of John Wood Group instantly reveals why.
The recognition entice
It doesn’t take a lot effort to note that one thing goes horribly flawed with John Wood. Shares of the engineering enterprise collapsed 60% this month on the again of its newest earnings. And that’s after already struggling a 35% crash in August.
Management’s been below loads of investor stress lately. Shareholder demand compelled the board to entertain a possible buyout supply in 2023 from personal fairness group Apollo. The deal finally fell via. But it was lower than a 12 months later that one other occasion, Sidara, got here alongside for an additional attempt. Once once more, shareholders pressured administration to think about a buyout and, as soon as once more, the deal failed, triggering that crash in August.
Meanwhile, John Wood’s newest interim results revealed a $815m impairment cost together with $140m in extra bills because the agency exits sure tasks. Combined, that translated right into a monstrous operating loss of $899m. And with the announcement of an impartial audit of its financials in its third-quarter outcomes, the inventory worth as soon as once more plummeted.
Needless to say, the scenario at Wood Group’s fairly dire. Withdrawals of takeover bids adopted by an audit don’t precisely paint a wholesome image. And any traders who’re simply following the group may discover themselves saddled with what seems to be a ticking time bomb. So why are Wood Group shares so standard proper now?
The hope for a comeback
As disastrous because the scenario appears, there are just a few extra elements to think about. To begin issues off, the $815m impairment was charged in opposition to goodwill, which is a non-cash expense. In different phrases, that is solely a paper loss. In the meantime, some encouraging indicators are rising.
Over within the consulting section, John Wood’s seemingly been in a position to train some pricing energy and develop revenue margins. Management’s additionally been disposing of underperforming non-core operations serving to to boost $125m. And total, it lately reiterated its full-year steerage.
Assuming these targets are met, and with the shares buying and selling near their 52-week low, this can be a shopping for alternative to think about. However, that’s a reasonably large assumption, particularly if the audit reveals much more impairment costs. That’s why it’s not a danger I’m keen to take, even with £100.
