During the Tuesday trading session on the London stock exchange, the Pearson PLC shares have risen by 5%. By the end of Monday’s trading, the stock closed 512.20p, however, after today’s gains, it has reached 540p level.
Pearson PLC is the world’s one of the leading publication and education company. It operates in 70 countries and employs over 22,500 people. The firm was founded back in the 1840s as a construction company. However, during the course of 1920s, the firm’s management decided to switch to publishing instead. The company has its headquarters in London, United Kingdom.
The stock has recently announced its half-year results. The numbers in this publication were not very encouraging. In fact, according to the official report of the company, the firm’s underling revenue has declined by 17%, which can be a significant blow to any type of business.
The company has also disclosed an operating loss of £23 million. As the statement mentions the total estimated negative impact of the outbreak of the COVID-19 pandemic was at £140 million. In contrast, back during the first half of 2019, the firm has posted an operating profit of £167 million. In response to those enormous challenges, the management did announce the plan to cut costs by £50 before the end of 2021.
Considering those results, it might be very surprising for some investors that the shares of the company are still rising. After disclosing all of those losses and challenges facing the company, one would expect that its stock should drop sharply. So the obvious question here is what is the reason behind the recent appreciation?
Well, in order to respond to this question, it is worth noting that unlike so many other companies, which cut the payouts to shareholders dramatically or canceled it altogether, the Pearson management maintained its semi-annual dividend unchanged at 6 pence per share.
Going forward, this decision can certainly help the share price of Person stock due to several reasons. Firstly, the decision not to cut the dividend, clearly shows that the management of the firm is clearly determined to defend the interest of its shareholders and deliver decent returns to them.
The second signal coming out of this decision is that the board of directors of the company feels confident about the future earnings of the company. This shows that the management thinks that the firm can recover from those recent losses and regain its profitability in the foreseeable future.
Therefore, seeing this high degree of confidence in the future of the company and concern for building shareholder value, the investors bought Pearson shares and led to the appreciations of its price.
Pearson PLC Stock Price Performance and Current Valuations
As we can see from the chart above, a year ago the stock was trading near 895p. The next 2 following months market the time of indecisive fluctuation, with stock price mostly moving sideways. However, during the late September 2020, the stock began its long term downward trend.
After steadily losing ground for several months in a raw, by May 2020, the price of Pearson PLC shares has dropped all the way down to 424p. This means that in less than one year period, the stock lost more than 52% of its value.
Despite those developments, from late May 2020, the stock began to recover. During the subsequent months it did regain at least some of the most recent losses and by the end of July 2020, it traders near 540p level.
So at this stage, one might wonder, whether the stock is still fairly valued after this recent appreciation. Well, in order to answer this question, we need to take a look at some numbers.
According to CNBC, the earnings per share (EPS) indicator of the company nowadays stands at 34.18p. This means that the current price to earnings (P/E) ratio of the stock is around 15.80. This suggests that at current market prices, the stock is quite fairly valued. In fact, at the current P/E ratio it is not very far from the undervalued territory.
Consequently, some investors might look at the stock as a great undervalued opportunity. However, the only concern with this point of view is that the stock has been in the long term downward trend for a considerable amount of time. Therefore, at this stage, it is not very clear whether the stock has decisively broken out of this downward channel, or alternatively, this downtrend might resume at some point in the future.
It goes without saying that the price performance of the stock will be mostly depended upon the financial positioning of the company. The management has already announced measures to save tens of millions of pounds by reducing its expenditure. However, another important part of the equation is the company’s ability to restore its revenues back to 2019 levels. So at this stage, it is difficult to predict, whether the firm will be in a position to achieve those aims.
The beta indicator of the stock is 0.20. This means that the security is approximately 80% less volatile than the FTSE 100 average. This is rather rare among the stocks and can be attractive to those investors who do not like a great deal of volatility in the markets.
The dividend yield of the stock is near 3.6%. In times of near-zero interest rates, this might seem like an attractive rate of return for income investors. The firm has already demonstrated its commitment to maintaining its payouts to shareholders. Consequently, the dividend seems relatively safe, at least for the near future. Therefore, this stock might be a decent addition to any income orientated portfolio.