Woolworths Group Ltd (ASX: WOW) has settled a $100 million class action case brought on from shareholders accusing it of misleading conduct.

The supermarket faced the wrath of investors back in 2015 when it provided shock downgrades to its profit guidance.

This was caused by Woolworths’ decision to spend $500 million cutting grocery prices to recover clientele given up to Coles Group Ltd (ASX: COL) and Aldi.

That sudden cost, plus losses mounting from its foray into the hardware sector, saw the Woolworths share price decline from more than $36 in August 2014 to below $23 in November 2015.

Law firm Maurice Blackburn launched the legal action back in September 2018. Woolworths quietly updated the market late on Friday afternoon about the settlement.

“The settlement, in the sum of $44.5 million inclusive of all costs… will not have any financial impact on Woolworths Group,” the company stated.

“The settlement is without admission of any liability.”

Woolworths share price has recovered nicely since 2015

The supermarket’s price-cutting drive did work. It regained market share back from Coles and Aldi, with Woolworths shares now trading at $40.86 (at the time of writing).

Last month Goldman Sachs had a “neutral” rating for Woolworths shares, with a price target of $39.90. Its analysts are forecasting a 10.1% lift in year-on-year revenue when Woolworths’ half year results come out this month.

That growth will be mostly driven by groceries and Big W, with the hotels business dragging it back due to the COVID-19 pandemic.

Goldman Sachs is predicting the supermarket giant will pay out 48.8 cents of dividend per share, compared to 54 cents forecast by other analysts.

More reading

• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• ASX 200 Weekly Wrap: Change in America spurs ASX 200 higher
• Here’s one party Woolies and Coles will not be attending
• What analysts expect from the Woolworths (ASX:WOW) first half result
• CV Check (ASX:CV1) share price flat on results update

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Last May — when Tesla Inc (NASDAQ: TSLA) shares were trading for around $150 on a split-adjusted basis — CEO Elon Musk opined on Twitter that Tesla’s stock price was probably too high.

Tesla stock price is too high imo

— Elon Musk (@elonmusk) May 1, 2020

https://platform.twitter.com/widgets.js

As Tesla stock continued to rise during the remainder of 2020 and sustained its massive gains, Musk began to change his tune. By the time Tesla held its fourth-quarter earnings call last week, the stock had more than quintupled from the level that Musk had considered “too high” less than a year ago. Nevertheless, the Tesla CEO laid out a case for why the impending arrival of full self-driving technology would justify the company’s lofty valuation.

There’s just one problem: Musk’s entire argument is built upon a fallacy. Let’s take a look.

Elon Musk math

Last year, Tesla’s automotive revenue reached a record $27.2 billion, and the company earned a GAAP operating profit of $2 billion. Tesla expects to grow dramatically from that base. It projects that it will increase its vehicle deliveries about 50% annually on average in the near term, as it increases its battery and assembly capacity, localizes production, and introduces new models.

Still, based on Tesla’s Wednesday closing price of $864.16 and its diluted share count of 1.124 billion shares, the company had a fully diluted market capitalisation of nearly $1 trillion. Even if Tesla was able to grow its earnings tenfold, it wouldn’t justify the company’s recent valuation without aggressive expectations for continued growth.

During Tesla’s recent earnings call, Musk opined that the stock remains reasonably valued if one factors in the profit potential of the full self-driving capabilities Tesla is building.

… [I]f Tesla’s ships, let’s say, hypothetically, $50 billion or $60 billion worth of vehicles, and those vehicles become full self-driving and can be used … as robotaxis, the utility increases from an average of 12 hours a week to potentially an average of 60 hours a week. … [L]et’s just assume that the car becomes twice as useful … that would be a doubling again of the revenue of the company, which is almost entirely gross margin. … [I]t would be like … having $50 billion of incremental profit basically from that because it’s just software.

In short, Musk argues that FSD capability will make each car Tesla builds dramatically more valuable, because it can be used more than a personal vehicle. Musk believes that Tesla will capture that extra value as almost pure profit, driving a massive earnings inflection that would enable the company to earn tens of billions of dollars annually within a few years — with plenty of room to keep growing.

It’s a giant fallacy

Alas, this “plan” is built on a fallacy. First, while typical car owners may spend just 12 hours per week in their vehicles, actual taxis get used far more often. In New York City, for example, some taxis are used for double shifts and may operate 100 hours per week (or even more). Those vehicles aren’t more valuable just because they will be used more: Production costs determine the vehicle’s selling price more than intended usage.

Second, Statista estimates that the global market for taxis and ride-hailing will reach $260 billion this year. That represents a sizable opportunity, but getting to $50 billion of revenue or more won’t be easy. It will take time for robotaxis to disrupt the traditional ridesharing and taxi markets. And even when they do, Tesla will face lots of competition, as numerous other companies also hope to roll out robotaxi services.

Robotaxi services may earn higher margins than auto manufacturers in the long run. However, Musk’s implicit assumption that Tesla could double its revenue with minimal incremental costs — thus earning pre-tax margins of 50% or more — is clearly false. If Tesla were to set its robotaxi rates high enough that it could earn such lofty margins, competitors would undercut it on price and steal its market share. This competitive dynamic will sharply limit the incremental profit opportunity from using Teslas as robotaxis.

Look to the core business for Tesla’s value

Many Tesla bulls expect the company to become the largest automaker in the world within 10 or 15 years, delivering 10 million or more cars annually. If Tesla can pull that off while attaining double-digit automotive operating margins and building up lucrative side businesses in solar, batteries, and robotaxis, Tesla stock could certainly grow into its valuation over time.

However, investors shouldn’t count on robotaxis as a magic bullet that will make Tesla massively profitable overnight. Tesla may develop a nice robotaxi business on the side, but the core auto business’ growth will determine whether Tesla stock continues to soar or plunges back to earth in the decade ahead.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Why Tesla stock fell on Thursday
• Gamestop on the ASX? Why GME Resources (ASX:GME) share price rocketed 28% today
• Tesla earnings: 5 must-see metrics highlight strong execution
• Here are the US shares ASX investors are buying
• Will the blue sweep boost Tesla? Don’t count on it

Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX stocks are already facing a tough start this morning but the Crown Resorts Ltd (ASX: CWN) share price could be hit harder than most.

The futures market is pricing in a 0.5% drop in the S&P/ASX 200 Index (Index:^AXJO) when trade kicks off on the first day of the new month.

But the flash COVID-19 lockdown in Perth is claiming an early victim with Crown reporting that its Perth Casino will have to cease most operations.

CWN share price catching new WA COVID lockdown bug

Management said that from 31 January till 5 February, it will close all gaming activities as well as food outlets. This means banqueting and conference facilities will also be shuttered and Crown’s food venues will only serve takeaway.

Its hotel accommodation business can continue to operate, but at a reduced capacity.

Crown had been hit hard by the stage four lockdown in Victoria – regarded as the toughest in the Western world.

Why the COVID lockdown could get a lot worse

What might also worry Crown investors is speculation that the five-day lockdown imposed by the McGowan government may last a lot longer.

The warning comes from Australian Medical Association president Omar Khorshid that was reported on Nine News.

If the hotel quarantine security guard at the centre of the outbreak scare has already  passed on the infection, the state will need more than five days to get the situation under control.

“If it has already spread, it will be longer than five days. It will be significantly longer,” Dr Khorshid told Nine.

“You have to go to the people who test positives, to their contacts, to work out where they have been. As we have seen in every other state. The real test will be the five days. Does anybody test positive? If they do, we are in for a much longer battle here in West Australia.”

Impact on other ASX stocks

If the virus is out of control, CWN won’t be the only ASX stock to be impacted by the WA COVID lockdown. The Fortescue Metals Group Limited (ASX: FMG) share price and Rio Tinto Limited (ASX: RIO) share price are also likely to come under pressure if worksite restrictions are imposed.

We are still some ways from that and it’s hard to imagine we could become Brazil, but it’s a risk to be aware of.

COVID isn’t the biggest challenge for CWN shareholders

The outbreak in the “fortress state” of Western Australia is the latest challenge hitting the problem-laden CWN share price.

The highly anticipated report from New South Wales Inquiry is expected to be handed to authorities today, reported the West Australian.

The Inquiry was examining if Crown is fit to be holding a gaming license in the state and the revelations during the process is damning.

But the public may need to wait for another two weeks to find out the details of the investigation.

COVID isn’t the biggest threat facing CWN shareholders.

More reading

• These were the worst performing ASX 200 shares in January
• These were the best performing ASX 200 shares in January
• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week

Motley Fool contributor Brendon Lau owns shares of Fortescue Metals Group Limited  and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Crown Resorts Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in ASX healthcare company Polynovo Ltd (ASX: PNV) have had a shocking start to 2021, shedding over 30% of their value in January. The decline in the Polynovo share price comes despite the company announcing a sharp rise in first half sales, as well as its continued expansion into a new European markets.

What does Polynovo do?

Polynovo is a healthcare company specialising in the development of biodegradable medical devices that aid in skin tissue repair. Its flagship medical technology is called NovoSorb, a medical-grade polymer designed for use in surgery, tissue repair, and other medical procedures.

Novosorb BTM (“Biodegradable Temporising Matrix”) is the first fully commercialised Novosorb product developed by Polynovo. It is a synthetic polymer matrix that clinicians can use to treat burns and other serious skin wounds. The polymer can be applied to trauma sites on the skin and encourages the body to build new tissue. The polymer is eventually safely absorbed and excreted, leaving only biological material behind.

What’s been happening to the Polynovo share price?

After a strong rally in the second half of 2020, which saw the Polynovo share price surge to a new record high of $4.08 by late December, Polynovo shares have collapsed this year. They are now trading at just $2.63 (at the time of writing), 35% less than their 52-week high and their lowest price since early November.

Recent news out of the company

Polynovo has released a flurry of announcements in recent months. On 19 November 2020, the company announced it was extending its partnership with its European distributor, PolyMedics Innovations, and entering the healthcare markets in Belgium, the Netherlands, Luxembourg and Sweden.

Then, on 20 January 2021, Polynovo also announced it had appointed distributors in Poland and Turkey. The company claims these markets are both key to its growth strategy. Turkey provides a gateway into the Europe-Middle East-Africa (EMEA) market, while Poland is the sixth largest country in Europe and has a medical device market valued at over $2.2 billion.

However, while the announcement back in November caused the Polynovo share price to soar to new highs, the ones in January barely shifted the dial at all.

This could be down to uncertainty reflected in the company’s interim trading update for the first half of FY21, released to the market on 12 January 2021. While sales for the half were up 31% versus the first half of FY20, most of this uplift came in the first quarter, while sales in October and November were slower than expected.

The lumpiness in the sales numbers was partly down to disruptions caused by COVID-19, particularly in the United States. Other markets that have dealt better with the challenges posed by the pandemic, such as Taiwan and New Zealand, exceeded their budgets.

Polynovo Managing Director Paul Brennan hinted that there might be some continued short-term volatility in the company’s results when commenting on the announcement. He noted that “in the short-term, forecasting sales will be challenging particularly in the US, however the medium-term outlook is strong.”

Based on the current Polynovo share price, the company has a market capitalisation of around $1.7 billion.

More reading

• These were the worst performing ASX 200 shares in January
• These ASX 200 shares have been smashed in 2021
• ASX 200 rises 0.4%
• ASX 200 up 0.5%: BHP’s update, PolyNovo jumps, Ansell impresses
• Why Afterpay, Ansell, MyDeal, & PolyNovo shares are storming higher today

Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

eBay (NASDAQ: EBAY) investors had a fantastic 2020, with the stock price comfortably outpacing the broader market during the pandemic-fuelled e-commerce boom. Sure, companies like Amazon and Shopify posted wider gains. But eBay’s nearly 40% share-price spike reflected some major operating wins and kept it ahead of other huge online businesses, including Walmart.

Investors are about to learn exactly how well eBay did in 2020 when the company announces its holiday season results. The strength of that performance, along with management’s official outlook for 2021, will determine whether the stock continues its winning streak into the new year.

Let’s take a closer look at the company in advance of the fourth-quarter earnings report’s release on Wednesday, Feb. 3, and what investors should watch for.

Merchandise volumes and conversion rates

eBay’s core growth metric is the volume of merchandise moving through its platform. Soaring results here formed the basis for last year’s stock surge. Volume had been flat or declining in the quarters before the pandemic struck but shot up to over 20% year over year as commerce stampeded to online channels beginning in late February.

This quarter’s report will answer big questions around the sustainability of that spike. Volume gains year over year slowed to 21% in Q3 from 29% in the quarter that captured the most intense period of retailing shutdowns. For its part, management in late October forecast gains in the low double-digit percentages. However, eBay easily surpassed its last quarterly outlook, and investors are hoping for another beat this week.

Other indications of healthy market share would show in an expanding buyer pool and robust conversion rates for its product pages. CEO Jamie Iannone should comment on both these metrics on Wednesday.

Cash and profits

eBay’s asset-light operating model restricts its growth potential a bit as compared to Amazon, but the trade-off is higher profitability and impressive cash flow. Earnings more than doubled last quarter as operating margin surged thanks to the combination of higher sales, lower expenses, and an uptick in seller transaction fees.

Wall Street is expecting more gains ahead in this area, with reported earnings set to rise to $0.83 per share compared to $0.66 per share a year ago. But the more useful figure to follow is cash flow. eBay generated $584 million of free cash flow in Q3, and the company needs more success here to meet management’s goals of investing in the business while paying down debt and sending more cash to shareholders through dividends and stock repurchases.

The 2021 outlook

Iannone and his team will be looking at an unusually wide range of potential results as they craft their official 2021 forecast. Organic sales likely increased by at least 20% in 2020 compared to their initial prediction targeting a flat result. That boost sets a high bar for growth this year, but it also gives the marketplace giant momentum in a quickly growing industry.

The good news is eBay already showed off a few impressive competitive advantages at a time when sellers were looking for new platforms they could use to connect with their customers during COVID-19.

The company’s main challenge for 2021 is convincing these small businesses to stick around, mainly by making the platform more popular with buyers and easier for sellers to use. These successes are the key to eBay protecting its positive momentum in what’s likely to be a competitive selling period ahead for the e-commerce industry.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These were the worst performing ASX 200 shares in January
• Top ASX shares to buy in February 2021
• These were the best performing ASX 200 shares in January
• The worst mistake GameStop investors can make right now
• 3 ASX dividend shares with yields above 5%

Demitri Kalogeropoulos owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) was on course to record a strong gain in January until a final week market selloff. The benchmark index ultimately ended the month with a gain of 0.3% to 6,607.4 points.

A number of shares were unable to follow the market higher and recorded disappointing monthly declines. Here’s why these were the worst performers in January:

PolyNovo Ltd (ASX: PNV)

The PolyNovo share price was the worst performer on the ASX 200 in January by some distance with a 32.2% decline. Investors were selling the medical device company’s shares following the release of a disappointing first half trading update. During the six months ending 31 December, PolyNovo delivered a 31% increase in sales over the prior corresponding period. Although this is strong growth, it fell short of both the market’s expectations and management’s guidance. Bell Potter was disappointed with its performance. It commented: “Polynovo announced a relatively disappointing trading update, with 1H FY21 sales growth of 31% vs the pcp well below our forecasts, consensus and management expectations.”

Nanosonics Ltd (ASX: NAN)

The Nanosonics share price was out of form and dropped 14.8% lower during the month. This was despite there being no news out of the infection prevention company. Though, the company was the subject of a reasonably bearish broker note during the period. Analysts at Ord Minnett have retained their lighten rating and put a $5.65 price target on its shares. This compares to the latest Nanosonics share price of $6.84. It believes rising COVID-19 cases in Europe and the US could be putting pressure on demand for its products.

Adbri Ltd (ASX: ABC)

The Adbri share price wasn’t far behind with a 14.3% decline in January. This also appears to have been driven by a broker note. According to one out of Morgan Stanley, its analysts downgraded the building products company’s shares to an underweight rating and cut the price target on them to $3.30. It believes the company’s shares are fully valued given its reasonably subdued growth outlook.

Link Administration Holdings Ltd (ASX: LNK)

The Link share price was out of form and dropped 13.9% lower in January. Investors were selling the administration services company’s shares after the release of an update on a takeover approach by SS&C Technology Holdings. In December, the NASDAQ listed global provider of investment and financial software tabled a conditional offer of $5.65 per share to acquire 100% of Link. Although management felt the offer undervalued the company, it still allowed SS&C Technology to undertake due diligence. However, following the completion of its due diligence, the US company has walked away from the table and withdrawn its proposal.

More reading

• These were the best performing ASX 200 shares in January
• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• 2 quality ASX growth shares that could be long term market beaters
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd and POLYNOVO FPO. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. The Motley Fool Australia has recommended Link Administration Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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With the new trading year underway and earnings season just around the corner, we asked our Foolish contributors to compile a list of some of the ASX shares experts are saying to Buy in February.

Here is what the team have come up with…

Tristan Harrison: Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an electronic donation business which predominantly serves medium and large United States churches. The company is rapidly growing its margins. In Pushpay’s FY21 half-year result it increased its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin from 17% to 31%.

The company also recently increased its FY21 EBITDAF guidance range of US$56 million to US$60 million. Management is expecting operating leverage to continue to accrue this year and beyond.

Pushpay is aiming for 50% market share and US$1 billion of annual revenue over the long term.

Motley Fool contributor Tristan Harrison does not own shares of Pushpay Holdings Ltd.

Bernd Struben: Nearmap Ltd (ASX: NEA)

Nearmap uses patented cameras and processing software systems to provide digital mapping and aerial imagery services. The company’s primary markets are the US, Australia, Canada, and New Zealand, and, according to Nearmap, there is plenty of growth potential left in these markets. The company is also hoping its commitment to product innovation, such as its new Nearmap AI, will help create effective barriers to entry for would-be competitors.

Following Nearmap’s $90 million capital raising in September, the company believes its cash position is strong. Management is striving to achieve annualised contract value (ACV) growth of 20% to 40% over the coming years. At the time of writing, the Nearmap share price is trading 33.5% lower than its 52-week high seen in August.  

Motley Fool contributor Bernd Struben does not own shares of Nearmap Ltd.

Sebastian Bowen: Challenger Ltd (ASX: CGF)

Challenger is a fund management firm focused on annuities. Annuities are financial products that have been growing in popularity in recent years due to the certainty of income they can provide to the purchaser in retirement. This trend could arguably broaden further in the future with Australia’s ageing population.

Unfortunately for this ASX share, the record low interest rates we have been seeing over the past year have dented the company’s fortunes. However, this also means Challenger could be a  beneficiary if rates start rising again. And that is bound to happen sooner or later. 

Motley Fool contributor Sebastian Bowen does not own shares of Challenger Ltd.

Brendon Lau: Macquarie Group Ltd (ASX: MQG)

The Macquarie share price will be one to watch in February after Morgan Stanley recently highlighted the potential for the investment bank to meet or beat its FY21 consensus forecasts. The broker cited improved trading conditions and ongoing structural tailwinds for its “overweight” recommendation on this ASX share with a 12-month price target of $155.

At the time of writing, the Macquarie share price is trading at around $131, more than 14% lower than its 52-week high of $152.35 achieved in February last year.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Ltd.

Rhys Brock: Temple & Webster Group Ltd (ASX: TPW)

Online furniture retailer Temple & Webster has been a surprising success story to emerge out of the COVID-19 pandemic. With government-imposed lockdowns hurting many brick-and-mortar businesses across Australia and New Zealand in 2020, Temple & Webster was able to cash in on the consumer shift towards online shopping. It reported a 74% jump in revenues to $176.3 million in FY20, and active customers increased 77% to almost 500,000.

Although there has been a recent pullback in the Temple & Webster share price, the performance of the underlying business has remained robust. First quarter FY21 earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $8.6 million – which is already greater than the company’s EBITDA for all of FY20.

Motley Fool contributor Rhys Brock owns shares of Temple & Webster Group Ltd.

James Mickleboro: Appen Ltd (ASX: APX)

The Appen share price has come under significant pressure recently. This has been partly due to a trading update from the company revealing COVID-19 was having an impact on demand from some its largest customers. The good news is that management believes this is a temporary headwind and expects demand for its machine learning and artificial intelligence data services to rebound once the pandemic eases.

And, with the Appen share price down ~50% from its 52-week high, analysts at Macquarie have recently put an outperform rating and $27.00 price target on Appen shares. They believe the company is well-placed to benefit from increasing artificial intelligence spending in the coming years.

Motley Fool contributor James Mickleboro does not own shares of Appen Ltd.

Tristan Harrison: Pacific Current Group Ltd (ASX: PAC)

According to Pacific Current, it is a company that invests in “exceptional” investment managers.

In its update for the three months ending 31 December 2020, Pacific said its funds under management (FUM) rose 8.3% to $112.8 billion with GQG, one of its investments, posting “significant increases”. GQG grew FUM by over US$35 billion during 2020.

Dean Fremder of Perpetual Limited (ASX: PPT) went as far as saying: “The stock’s really cheap. It’s on nine times earnings. It’s growing earnings at double digits, so more than 10% a year… we think they can pay out a much larger portion of their earnings as dividends.”

Motley Fool contributor Tristan Harrison does not own shares of Pacific Current Group Ltd.

Sebastian Bowen: Coles Group Ltd (ASX: COL)

Coles is a certainly a company that flourished during the worst throes of the pandemic-induced lockdowns last year. Thanks to panic buying of goods, Coles managed to substantially increase its revenue during 2020. That’s the appeal of consumer staples companies in a nutshell. They provide products we all use on a daily basis.

Whilst many ASX shares delivered reduced dividends last year, Coles actually increased its dividend payouts. Based on the current Coles share price, you can expect a fully franked dividend yield of more than 3%, which looks pretty good in this low-interest-rate environment.

Motley Fool contributor Sebastian Bowen does not own shares of Coles Group Ltd.

More reading

• 3 ASX dividend shares with yields above 5%
• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• Leading broker names Nearmap (ASX:NEA) as a buy
• 2 on form ASX dividend shares to buy
• Leading brokers name 3 ASX shares to buy today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Challenger Limited, Macquarie Group Limited, Nearmap Ltd., and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Appen Ltd and COLESGROUP DEF SET. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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A disappointing final week of the month led to the S&P/ASX 200 Index (ASX: XJO) climbing just 0.3% to 6,607.4 points in January.

Fortunately, a good number of ASX 200 shares outperformed the benchmark index by some distance. Here’s why these were the best performers in January:

Zip Co Ltd (ASX: Z1P)

The Zip share price was the best performer on the ASX 200 in January with a massive 37.4% gain. Investors were buying the buy now pay later provider’s shares following the release of a strong second quarter update. During the three months ended 31 December, the buy now pay later provider delivered a 103% increase in transaction volume to a record $1.6 billion. A key driver of this strong form was Zip’s US-based QuadPay business, which recorded explosive growth despite the increasing competition from PayPal and Shopify. QuadPay reported a 217% increase in transaction volume to $673.1 million, which was driven by a 180% lift in customer numbers to 3.2 million and a 655% jump in merchants to 8,400 in the key market.

Bingo Industries Ltd (ASX: BIN)

The Bingo share price was a strong performer over the month and jumped a sizeable 32.4%. The catalyst for this was news that the waste management company has received a takeover approach from a private equity firm. BINGO received an unsolicited, highly conditional, non-binding, indicative proposal from funds advised by CPE Capital. The indicative cash price currently offered to BINGO shareholders under the proposal is $3.50 per share.

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price was on form last month and recorded an impressive 25.4% gain. Investors were buying the health imaging software company’s shares after it announced another major new contract win. According to the release, Pro Medicus has signed a $40 million seven-year contract with Salt Lake City based Intermountain Healthcare. Management advised that the agreement will see its Visage 7 Viewer and Visage 7 Open Archive products implemented across all of Intermountain’s radiology and subspecialty imaging departments. Impressively, this is the fifth major contract win Pro Medicus has announced in the space of six months.

Lynas Rare Earths Ltd (ASX: LYC)

The Lynas share price wasn’t far behind with a sizeable gain of 20.1% over the month. Investors were buying the rare earths producer’s shares after it provided the market with an update on its US activities. According to the release, the company has entered into an agreement with the United States Government to build a commercial Light Rare Earths separation plant in Texas. The U.S. government will provide funding of approximately US$30 million for its construction. In addition to this, last month Lynas released its second quarter update and revealed record quarterly sales revenue of $119.4 million. This was up from $87.3 million in the first quarter.

More reading

• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• 5 things to watch on the ASX 200 on Monday
• The Zip (ASX:Z1P) share price rocketed 37% higher in January
• 5 things to watch on the ASX 200 next week
• 3 reasons to consider Sezzle (ASX:SZL) at this share price

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post These were the best performing ASX 200 shares in January appeared first on The Motley Fool Australia.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shares of GameStop (NYSE: GME) have been on an astronomical rise recently as a short squeeze and a gamma squeeze combined to force a lot of buying of its shares. While those who bought in early in anticipation of such an outcome may be sitting pretty right now, current investors should beware. Squeezes like this rarely end well, and the same forces that caused its shares to skyrocket can cause its shares to fall just as far, just as fast if not faster.

Indeed, the worst mistake GameStop investors can make right now is to assume the party will continue. It very likely won’t, and those who invest believing it will are the ones in line to get hurt the worst when it all comes crashing down. There are at least two huge risks facing GameStop’s shares that can cause the whole thing to come tumbling down. Failure to recognize them will cause trouble for those left holding the bag when the whole house of cards collapses.

The options at the centre of that gamma squeeze

The very stock options that helped drive the gamma squeeze on the way up may end up fuelling the collapse on the way down. Here’s why. On Friday, Jan. 29, GameStop stock closed at $325 per share. According to data from Nasdaq.com, the following expiring near-the-money yet still in-the-money call options look like they were still open at the market close:

• 7,835 contracts at $320 per share.
• 855 contracts at $310 per share.
• 1,170 contracts at $300 per share.

When options expire in the money, brokers typically automatically exercise those options on behalf of their clients. And that’s where the risk starts. Once exercised every one of those options contracts require the holder to buy 100 shares of stock at the options exercise price. Those three options contracts alone are forcing people to buy 986,000 shares of GameStop stock  over this weekend, for a total out of pocket investment of $312,325,000.

For a sense of scale, one single contract at $320 requires an investor to pony up $32,000 to buy the shares at expiration. At some point between market close on Friday Jan. 29 and market open on Monday Feb. 1, affected former GameStop options investors will wake up to find they are now GameStop shareholders. Not only are they now shareholders, but they are out tens of thousands or hundreds of thousands of dollars or more.

If those investors don’t have the cash or margin buying power to complete the purchase, their brokers will issue a margin call and forcibly close out those positions by selling GameStop stock. Just as buying the stock and options forced the short squeeze and gamma squeeze on the way up, mandatory, broker-initiated selling resulting from margin calls could force the process to reverse.

When a broker forces a sale because of a margin call, that broker does not care what the price of the underlying asset is. All that broker cares about is getting the account within regulatory or contractual limits. This is a strong and structural mechanic of why short and gamma squeezes are such dangerous, double-edged swords that can reverse just as easily and quickly as they form.

Even if these newly minted GameStop investors aren’t forced out of their positions because of a margin call, many of them may decide to sell anyway. After all, it is one thing to gamble a few hundred dollars on an option, but it’s something else entirely to find yourself committed to tens of thousands of dollars (or more) in a very speculative stock position.

Beware the cult of personality

Beyond the structural mechanics of short and gamma squeezes, GameStop investors face another, more personality-driven risk. At the center of the mania is a single Reddit poster (whose online username can’t be reprinted in a family friendly publication), who has regularly posted his investment progress on the stock.

The risk doesn’t come so much from his postings, which have largely consisted of just screen captures of his brokerage account positions and value, but rather the mass of those who have followed him. The community comments in response to his posts are littered with sayings like “if he’s still in, I’m still in” and all sorts of references to “sticking it to the man.” Those are not the sayings of rational, valuation-focused investors, but rather people swept up in an emotional movement or commitment to a person.

Emotional investing may work for a little while, but it rarely ends well. First, those that have followed along by buying up all those call options that caused the gamma squeeze may not have fully recognized the financial commitments they made by buying those options. Their fanatical commitment may quickly wane once they realize just how deep into it their own pockets they have really reached to take part in this movement.

Even if that doesn’t cause the stock to come tumbling down, at some point, the Reddit poster is going to decide he has gained enough wealth from that particular speculation and reduce or close his position. His position — 50,000 shares and options to buy another 50,000 more — is only a small fraction of the daily volume on the stock and may not be enough to move the market on its own. When he sells, however, all the “if he’s still in, I’m still in” investors will probably rush to sell as well.

With the leader out and the mass of followers not far behind, what’s left to hold up the stock or keep those short and gamma squeezes from rapidly reversing? Even worse for those following along, many of those holding only because the original poster is still holding will find out the hard way just how quickly the market can turn the other way. Paper profits can quickly turn to very real losses, especially when the drivers of the initial move in one direction become the drivers of the move in the opposite direction.

It’s not a question of whether, but rather when

Short squeezes and gamma squeezes eventually run out of steam. Whether it’s because of the mechanics of expiring options, the person at the eye of the storm deciding he has profited enough, or some other reason, the GameStop momentum will also run out.

Investors who are holding because they think they will really make money from the trend continuing risk being the poster children of falling victim to the greater-fool theory. They run the very risk of losing everything they’ve invested — or even more, if margin is involved.

If you are an investor in GameStop stock or options, consider the very real and incredible risks you are facing and plan and act accordingly. This party is very likely to not end well, and those who are the most euphoric now may very well end up hurt the worst when it does end.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• ASX 200 Weekly Wrap: Reality (and GameStop) finally hits ASX
• How to buy US shares from Australia right now
• GameStop chaos: Real reason Robinhood cut off retail investors
• GameStop frenzy: 3 shorted ASX shares that could shoot up
• GameStop (NYSE:GME) stock insanity: Here are 4 things you need to know

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The worst mistake GameStop investors can make right now appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are some ASX dividend shares that have yields of more than 5%.

Higher yields may be attractive to some income-seeking investors that are struggling to find yield.

Here are some examples of businesses with yields of more than 5%:

Charter Hall Long WALE REIT (ASX: CLW)

This is a commercial property trust, it’s a real estate investment trust (REIT). It owns a variety of properties in different sectors such as Bunnings properties, service stations, telco exchanges, offices, grocery and distribution, agri-logistics and retail properties with long weighted average lease expiry dates such as the David Jones flagship store in Sydney.

Its major tenants by income are Telstra Corporation Ltd (ASX: TLS) accounting for 19% of the rental income, Australian government entities accounting for 16%, BP accounting for 14% and Woolworths Group Ltd (ASX: WOW) accounting for 13%.

As the name may suggest, it has a long dated lease expiry profile of around 14 years.

The ASX dividend share is expecting to generate no less than 29.1 cents of operating earnings per share (EPS) in FY21. Assuming a 100% distribution payout ratio, that equates to a forward distribution yield of 6.3%.

In FY20 its operating EPS was 28.3 cents per unit, which was an increase of 5.2% on the prior corresponding period. The distribution per unit was also 28.3 cents.

Pacific Current Group Ltd (ASX: PAC)

Pacific is a small cap ASX dividend share which invests in fund managers around the world. The company tries to find managers that have growth potential where it can help them with its expertise or capital to grow.

As the fund manager’s funds under management (FUM) grows, then Pacific Current benefits.

In FY20 the ASX dividend share saw its FUM increase by 62% to $93 billion, which helped underlying EPS rise by 18% to $0.51. The annual dividend per share was increased by the Pacific board by 40% to $0.35.

In the quarter to 30 September 2020, Pacific Current said that FUM had risen by 14% to $106.4 billion. In the subsequent three months to 31 December 2020 FUM rose by another 8.3% to $112.8 billion.

The fund manager GQG is the biggest driver of growth for Pacific. In the 12 months to 31 December 2020, GQG saw its FUM increase by more than US$35 billion.

In native currencies, US dollar orientated fund managers saw FUM increase by 16.9%. When converting to Australian dollars, the increase was partly offset by the significant increase of the Australian dollar against the US dollar.

Pacific currently has a trailing grossed-up dividend yield of 8.1%.

Nick Scali Limited (ASX: NCK)

Nick Scali is a furniture retailer that continues to see elevated levels of demand since COVID-19 hit the world.

In the FY21 first half result, the company is expecting unaudited net profit after tax (NPAT) to be $40.5 million, which would be growth of approximately 100%. There was better than expected container availability during the months of November and December leading to increased delivery volumes.

Total written sales orders for the first quarter of FY21 grew 45% and there was growth of 58% in the second quarter for the ASX dividend share.

In FY20, Nick Scali’s net profit after tax was flat at $42.1 million, but it increased the final dividend by 12.5% to 22.5 cents. That brought the full year dividend to 47.5 cents per share.

At the current Nick Scali share price, it has a trailing grossed-up dividend yield of 6.6%.

More reading

• 2 ASX shares to buy in February 2021
• 3 small ASX dividend shares with big yields
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• Got money to invest for dividends? Here are 3 ASX shares
• 3 little-known ASX dividend shares offering big income

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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