A Volatile Each Way Trading Opportunity?

Plus500 Ltd (PLUS) was one investors were getting excited about earlier in the year when it went up like a rocket with talk of 1000 to 1200p price targets as it hit 700p having listed via a placing at 115 pence on AIM in July 2013. So with the stock having plummeted back to earth like a stick it is now sub 500 pence so perhaps it might present a buying / trading opportunity down here for Timmy trader types. I note they put out a Q1 update in early April - so I guess there could be Q2 update in early July which could be a catalyst? Failing that they reported maiden interim in August last year having only listed in July. 

Given the fall in the shares (see chart below) I would have thought they might have to put out a statement anyway to either explain or state that they know of no reason to justify it. In addition I note it was down on big volume yesterday and that JP Morgan have announced today that they have gone above 14% in the stock having last announced at 12% on the 10th June. This suggests to me that a big seller / stock over hang that may have been driving the price down was perhaps cleared out yesterday. Certainly the price action with the stock up nearly 6% first thing this morning seem to support this argument.

So what is it - well you can learn more by clicking the highlighted name link above, but basically it is a competitor to IG Group (IGG) the spread betting firm which I have written up a couple of times. It is an Israeli based technology Company which operates a dealing platform for Private investors in the Contracts For Difference market (CFD's). It makes most of its money from the spreads and also generates revenues from overnight premiums, effectively a financing charge, on certain positions held by customers overnight and gains (offset by losses) on customers’ trading positions. The Group does not charge customers a commission on trades. They seem to have robust risk controls but I guess it is early days in their operation to know how robust these are. The Non Executives seem to have good relevant experience while the executives are the founders and are from Israel.

It has grown rapidly since listing last year and still has a couple of quarters of easier comparisons if it can maintain the run rate it achieved in its last two quarters. However, with the flatter markets recently perhaps the price is discounting a reversal in the recent growth rates as traders become less enthusiastic? It appears to be cheap on around 10x with a 5% plus yield, thanks to their policy of paying out 50% of net profits. It is more expensive though on other metrics like EV/EBITDA, Price to book and EV/Sales. The financial metrics seem exceptional (or too good to be true?) with ROE of 126% (according to Stockodpedia) and an operating margin of 58% (Source: Report and accounts).

Conclusion - a young Israeli stock listed on AIM which which makes its money off of mug punters which has fallen back to earth and is looking oversold in the short term after a big seller has perhaps been cleared out. There could be some news flow due which could either confirm the reasons for the price weakness and maybe send it down further or provide the basis for a sharp bounce from around these levels. I note the gap on the chart between about 333 pence and 400 pence, while the 200 day moving average is around 385 pence and 350 pence or so would be half the recent high and was a previous peak which could make that a good support level. So for the conservative trader you might want to wait and see if it approaches 350 pence before considering it or watch the news on this one to see if you want to jump in before. Of course you'll want to do your own research - so I have attached the latest Report and Account below to help with this.

plus500_annual_report_13_1.pdf
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