With the UK stock market performing well overall this year, it’s easy to assume that every UK stock is thriving. However, some companies have faced significant challenges in 2024, casting doubt on their future profitability. As an investor, it’s crucial to steer clear of potential pitfalls and make informed decisions about where to allocate funds. Here are two companies that I believe are best avoided in the current market climate.
- Lacking a Unique Angle
First on my list is CAB Payments (LSE:CABP), a stock that has plummeted by 45% over the past year following a significant crash. The company’s troubles began when it issued a financial warning last year, causing its share price to drop by over 70% in a single day. The global payments provider cited diminishing margins and trading volume due to unfavorable market conditions.
The recent H1 results paint a bleak picture, with adjusted earnings amounting to £18.7m, a sharp decline from the £40m reported in the same period in 2023. The company attributes this downturn to lower revenue and higher operating expenses. Despite its potential in facilitating payments in emerging markets, CAB Payments faces numerous obstacles that must be overcome before it can be considered a viable investment opportunity.
- Falling Production Levels
Another company giving cause for concern is Ferrexpo (LSE:FXPO), an iron ore pellet producer based in Ukraine. The stock has tumbled by 41% over the past year and a staggering 85% over the past three years. The ongoing conflict with Russia has severely impacted Ferrexpo’s production capabilities, with only a fraction of its pelletising lines operational in recent quarters. Additionally, nearly 700 employees are currently serving in the military, further straining the company’s output.
The uncertainty surrounding the war’s resolution makes it difficult to predict a swift recovery for Ferrexpo. Moreover, the decline in iron ore prices, from $133 per ton at the beginning of the year to $105 currently, has added to the company’s challenges. While a peaceful resolution could potentially boost Ferrexpo’s shares and production levels substantially, the current outlook remains uncertain.
In conclusion, investors should exercise caution when considering investments in companies facing significant internal and external challenges. By staying informed and monitoring developments closely, it is possible to make informed decisions that align with financial goals and risk tolerance. As the market landscape continues to evolve, adaptability and prudence are key to navigating potential pitfalls and emerging opportunities successfully.
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