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How I Chose my Current Holdings: the Case of Plus500 (LSE: PLUS)

I used to be a fan of index investing since even major investors admit having difficulties in beating major indexes (S&P500 above all). In 2016, I had a good return investing in a Nasdaq100 ETF, selected because of its Sharpe index (performance / volatility ratio) much higher than 1 (i.e. performance higher than risk).

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I then came out of this investment at the end of 2016, based on overestimated geopolitical and economic cycle concerns, and consequently lost the US stock rise in 2017.

(Nasdaq performance over the last 5 years, source: Yahoo Finance).

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Returning to the Market

In February 2018, I have decided to return to the stock market (better late than never) but the market was high, many institutional investors felt the danger of entering that moment, due to high multiples and a ten-year economic growth, probably at the end of the expansion cycle. So, I have decided to reenter in the equity market not betting on an index but selecting a “team” of high-potential securities that could give positive results even if a recession had come in the next future. I invested in high growth and profitable stocks (with the exception of two loss-making but high-potential biotech companies), of which 6 in the US, one in Israel and one in China. In the selection, I used a very efficient platform (Fineco Bank, owned by an Italian Bank, Unicredit) recommended by a professional manager.

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Now I want to talk about the investment in the Israeli company, and in parallel about the relative selection and analysis, step by step.

The first step was to include the selection parameters in the platform: high growth, profitability, medium-large capitalization, and last but not least low P / E. The markets considered were Western Europe included UK, and USA (China and other emerging countries were present with ADRs). Of course, very few titles with these characteristics came out, and among them was the Israeli stock of PLUS500.

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PLUS500 Background and Research

Plus500 is an international financial firm providing online trading services in contracts for difference (CFDs), across more than 2,000 securities and multiple asset classes. The company is headquartered in Israel and has subsidiaries in UK, Cyprus, Australia, Singapore and Bulgaria.

I did my homework on Excel, PLUS500 growth was impressive, 51% per year between 2012 and 2017, profitable from beginning, EPS growing 64% annually in the last five years. P / E at that time was below 8 …

Then I looked at the quality of its services, and I found excellent feedback on the service on the Internet: low spreads, speed of execution, excellent assistance. Someone had spread the word on the WEB that PLUS500 had cheated customers, but deepening it was clear that a customer had tried to claim a reimbursement for a temporary suspension of service during a time of market panic. However, the contest had been managed by the company and various proposals had been made to the client. I decided that PLUS500, in the vast majority of cases, was very much appreciated by its customers.

Consensus of the two analysts covering the share is Buy, and target price is GBP 16.5.

Finally, I wanted to know PLUS500 main shareholders, as of 31.12.2017 they were: Brighttech Investments, JPMorgan Chase & Co, Sparta24 Ltd, Odey Asset Management, Morgan Stanley, Old Mutual, Investec Group, Deutsche Bank.

(Plus500 stock price YTD, source: Yahoo Finance)

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Conclusion

In conclusion, I have invested approximately two months ago at purchase price of GBP 11.12, and today market price is GBP 15.7, with a 41% return. And do you want to know the news? I do not want to sell, not even in light of the normative changes of ESMA and the proximity to the consensus target price. Indeed my model target price is GBP 20, still a lot to run: PLUS500 is the striker and top scorer of my team!



Categories: Featured, International Stocks & Other

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2 replies

  1. Thank you for sharing your investing process, very useful..

  2. Hi Carlo,

    Great article. What your other holdings? It would be nice if you could elaborate on those as well.

    Best regards,

    Elizabeth

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