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When UK stocks fall sharply, I tend to pay attention to see if they might be good buys for a recovery.
Two options I want to look at more closely are: B&M European Value (LSE: BME) and YouGov (LSE: YOU).
Let's see what happened and analyze their investment cases to help me decide.
B&M
I have had my eye on discount retailer B&M for some time now. The business has been on a remarkable growth trajectory for many years.
However, the shares have fallen 13% in a 12-month period from 536 pence at this time last year to current levels of 464 pence. The sharp fall in June was due to a mixed trading report.
At the time, I thought the reaction to the earnings update was overblown. I stand by that view. The biggest problem was stagnant operating cash flow and adjusted earnings.
From an investment perspective, I am a fan of B&M stock and would definitely look to buy some shares when I can. It is now an even more attractive prospect due to a better entry point.
There is no denying the way B&M continues to dominate the supermarket giants and continues to grow. It has made the most of the recent cost of living crisis. Plus, let's face it, who doesn't love a bargain?
The stock currently trades at a price-earnings multiple of 12. Plus, a 7% dividend yield (albeit slightly inflated by a share price decline) sweetens the deal. However, I understand that dividends are never guaranteed.
From a bearish perspective, competition in the grocery sector is intense. This includes the so-called big four, as well as rival supermarkets Aldi and Lidl. As consumers look for more for their money, these companies have placed a strong emphasis on budget ranges. As B&M only offers premium branded products, albeit at discount levels, there is the potential for profits and returns to be affected.
YouGov
Market research industry leader YouGov suffered a massive 46% drop in one day last month due to a profit warning. I must admit that before that, the company was already on my radar, but this piqued my interest even more.
The shares have fallen a massive 58% in a 12-month period from 1,055p this time last year, to current levels of 440p. Oops!
YouGov reported that revenues would be 5% lower than expected. Not the end of the world. But wait, profits would be 32% lower! This is a clear example of forecasts that are way off the mark. It's also why I always take them with a grain of salt (or in this case, a bucket of salt).
There are many signs that suggest a recovery could be on the way. Its dominant market position and track record cannot be ignored. I am also taking into account the rise of artificial intelligence (ai) and how YouGov could capitalise on it and use it to boost profits and returns.
However, after recent events, as well as a lot of debt on its balance sheet, I am not convinced.
I will keep an eye on developments, but I will not be buying YouGov shares for now.