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Although the UK stock market has performed well so far this year, that doesn't mean all UK stocks have. Some companies have struggled mightily in 2024 and the damage may not be done yet. I have to be careful not to get carried away by some ideas that at first might seem like bargain buys. Here are two that are on my list to stay away from.
A single angle is missing
The first is CAB Payments (LSE:CABP). The stock is down 45% over the past year, after a big drop hit the share price almost a year ago.
Late last year, shares fell more than 70% a day after the company issued a financial warning. The global payments provider revised its revenue expectations downward, noting that “Market conditions are compressing margins and reducing trading volume.”
Fast forward to the first half results that were released last month, and things don't seem to have improved much. Adjusted profits came to £18.7 million, down from £40 million in the same period in 2023. The company said “lower revenues and higher operating expenses.”
I just don't see how the payments company is really unique in what it offers. Of course, it could carve out a niche in payments facilitation in emerging markets. This could help the business grow in the future. But in my opinion, there are many obstacles I need to overcome before considering investing.
Fall in production levels
Another company that worries me is Ferrexpo (LSE:FXPO). The stock has fallen 41% over the past year and 85% over the past three.
This is a sad case, as the Ukraine-based iron ore pellet producer has seen its production levels drop since the Russian invasion. The latest quarterly report indicates that only one or two pelletizing lines out of four were operational during the period. Additionally, it currently has almost 700 employees serving in the military, again putting pressure on production capacity.
I am hopeful that the war will come to a peaceful end at some point. However, I don't see any imminent signs of this. Therefore, I anticipate that Ferrexpo will continue to struggle, with production and revenue likely to fall further over the next year.
The fall in the price of iron ore has not helped either. At the beginning of this year it was trading at $133 a ton, but now it is at $105. This means that ultimately everything Ferrexpo produces is sold at a lower price than it could previously be obtained on the open market.
I could be wrong on this point and if we get a surprise peace deal, Ferrexpo shares could rise sharply on the good news. Operating levels could increase materially in a very short period of time, which would help increase revenue. However, I am happy not to participate in this.
