Stock prices, in general, have risen over the past year. The stock market rally that started after the first vaccines were developed, had just got under way at this time in 2020. Since then, it has mostly been good going for stock markets and that has raised the prices of shares across the board. There are a few exceptions, however. FTSE 250 penny stock CMC Markets (LSE: CMCX) has plunged over the past year.
Share price fall for the penny stock
The multi-asset trading platform has seen a 20%+ drop since last November. This is not altogether surprising, though. During the lockdowns, some sectors actually did quite well. Trading and investment activity, for instance, picked up significantly as UK households saved bigger proportions of their income than ever before. CMC Markets was clearly one of the beneficiaries of this trend. And its share price rose in tandem.
However, things are different now. With the cooling-off of the pandemic, many other segments of the economy have started thriving again. And their beaten down stock prices probably look more attractive to investors. On the other hand, CMC Markets has moderated its outlook. This means that its prospects are not quite the same as they were last year. It is little wonder then, that its share price has tanked.
CMC Markets mulls break-up
That said, its share price showed plenty of fluctuation in intra-day trading yesterday, before closing with a tiny increase of 0.4% from the day before. The impetus for fresh activity in the stock came from the possibility that that it could split into two. This separation, if it happens, will be into its leveraged and non-leveraged segments, following much growth in the business in the past year. But it did say in a release that this is still in exploratory stages.
It is expected to take a few months for the company to come to a firm conclusion. In the meantime, I reckon that its share price could stay volatile. It appears likely that the split would be positive for shareholders, however. US-based investment bank Jefferies, has upgraded the stock to ‘buy’ from ‘hold’ because of this.
Merits of the FTSE 250 stock
Whether the split happens or not, I think there is much to be positive about with CMC Markets. Just consider its dividend yield of 11.2%. I think it can probably sustain this level as well, going by its robust financial health. As long as its share price does not keep dropping from here, I feel this alone is a good reason for me to consider buying the stock.
And it is a cheap stock too, with a price-to-earnings (P/E) ratio of 4.5 times only. Moreover, the share price trend looks disappointing from last year’s perspective only. Compared to two years ago, its share price has still risen more than 100%.
What I’d do
I am so convinced of the merits of the stock, that I bought it recently. Even though the potential split has created some uncertainty, it is still a buy for me because of how much its price has fallen already compared to its fundamentals.
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Manika Premsingh owns shares of CMC Markets. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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