Last week’s data pull on growth stocks highlighted 3 potential financial/trading companies; IG Group (IGG), CMC Markets (CMCX) & Plus500 (PLUS) so I thought it a good idea to do a quick direct comparison between the 3 of them.
As you can see they are quite similar companies, below is the Wikipedia description.
CMC Markets is a UK-based financial services company that offers online trading in shares, spread betting, contracts for difference (CFDs) and foreign exchange across world markets. CMC is headquartered in London, with hubs in Sydney and Singapore. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.
IG Group is a British company providing trading in financial derivatives such as contracts for difference and financial spread betting and, as of 2014, stockbroking to retail traders. While the majority of the company’s activities are based in the UK, the company has expanded internationally. IG is regulated by the FCA, the UK’s financial authority body. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.
Plus500 is an Israeli international financial firm providing online trading services in contracts for difference (CFDs), across more than 2,000 securities and multiple asset classes. The company is headquartered in Israel and has subsidiaries in UK, Cyprus, Australia, Singapore, and Bulgaria. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.
5 Year Share Price Performance.
Here’s a graph from Tradingview showing the past 5 years share price performance of the 3 stocks. As we can see they follow many similar trends such as the big dip in 2019 which was due to new EU regulation on trading.
However in the last year Plus500 has accelerated and ended up 146% up over the 5 years. IGG has lagged and ended up just under 14% up.
The table above shows that in terms of earnings growth CMCX and PLUS are the faster growing companies. The colour code represents green for the highest, yellow for middle and red for lowest. Even though IGG is showing as red, the EPS growth rate of 51% is still very strong. The EPS Growth rate is a favourite statistic of mine when looking for growth stocks. The CMCX figure is huge, due to the low profits in 2019 and will need further research.
As you can see with above, the figures on ADVFN show different reporting dates. The CMCX full year report is due very shortly. These are the figures we are going to use for today’s post, but before any stock purchases are made , it’s important to check for the most recent financial updates.
The key point for growth stocks is that turnover and profits are rising. All 3 stocks took a dip in 2019, however 2020 figures show growth well beyond the 2018 figures. Turnover has grown from 2019 to 2020 for CMCX by 81%, PLUS 146% & IGG 35%. Pre tax profits have risen from 2019 to 2020 for CMCX by 1,459%, PLUS 176% & IGG 52%.
Once again Plus500 is clearly in the lead here. Particularly when looking for growth stocks ROE is a key figure. Personally I also like to consider net profit margins. Its seems that all 3 companies are healthy in these respects.
The Price Earnings Ratio (PE ratio) is probably the most used financial ratio. It’s important to consider like for like companies when using this, as we are doing today, but many value investors will tend to look for a PE of under 20. When comparing our 3 stocks it seems PLUS is cheap in comparison, but both CMCX & IGG could represent good value. In fact across the board it seems like PLUS is the most favourable stock.
THE PEG factor also called the PEG ratio, is another of my favourite statistics. It is simply the PE ratio / EPS Growth Rate. A value of less than 1 indicates that the stock might be undervalued. In our examples all 3 are clearly below 1.
Arguably the most important ratios are the financial ratios. These can define whether a company can survive tough times. Plus500 has the best statistics across the board here.
Many consider a debt ratio of less than 40% to be good and all 3 have this.
A current ratio of over 1, means that a company’s ability to cover short term debt with it’s current assets is covered. Many consider a ratio over 1.2 to be good and all 3 companies have this.
Similarly a liquidity ratio shows the ability to repay short-term creditors with cash and a ratio over 1 means fully covered. CMCX is the only stock to fail in this department.
The total debt/pre-tax profit is something I also like to check. Another way to look at it is how many years would it take to pay off the debt if we used all the pre tax profit. CMCX is therefore 2.08 years here. The lower the value the better. Generally I want to see the figure to be below 5.
The key to the statement for growing companies is that cash flow is positive and growing. Further analysis will be required, but we can see that 2019 showed some negatives in retained cash flow for CMCX & PLUS. However 2019 with the new EU regulations was a tough year. The 2020 figures for all 3 companies have grown positively against 2019 and 2018 figures.
Hopefully in the post we have covered many of the key areas, but we’ll still do some further research. A couple of topics to look into are;
• Does each Company have an economic moat? “An economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability. It is often an advantage that is difficult to mimic or duplicate (brand identity, patents) and thus creates an effective barrier against competition from other firms”. Source: Investopedia
• The Future of Financial Platforms? Undoubtedly financial platforms do have a future, but there have recently been some huge shake-ups in the industry. We have seen the effect of the new regulations on trading on all 3 companies and crypto-currencies are bound to have an effect too. The way that these companies adapt and move on will ultimately define whether they can keep growing or even survive.