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AMP Limited (ASX: AMP)’s investigation into a sexual harassment case confirmed all allegations were credible, yet concluded most of them were not offensive or harassment.

AMP executive Boe Pahari faced accusations of harassing a subordinate in 2017 but was later promoted to the plum position of AMP Capital chief executive.

This situation publicly came to light in the last few weeks, with shareholders panning the board’s judgement and the company’s culture.

Under pressure from investors, AMP chair David Murray and director John Fraser resigned last Monday. Murray still defended Pahari’s promotion on the way out.

Pahari stepped down from the AMP Capital CEO role, but remains with the company.

The victim’s lawyer has now reportedly revealed the 2-page summary of the investigation into Pahari’s behaviour.

Nine on Monday morning reported the document confirms all 9 allegations made by the victim.

But somehow the UK QC who led the enquiry classified most of the elements to not be harassment or offensive conduct.

This included telling the female colleague to dance on a table, asking the age of men she dated and requesting she use an encrypted messaging app to communicate.

The Motley Fool has contacted the woman’s legal firm Maurice Blackburn and AMP for comment.

The QC did find 2 points to be harassment. These were Pahari extending the victim’s hotel booking in London and offering to buy clothes for wearing to dinner with him.

When she refused the clothes offer, Pahari allegedly said that would make him look like a “limp dick”. He also allegedly said he wished he had met her years earlier.

Those 2 points were deemed to be “moderate” and “minor” harassment.

AMP report never mentions the words “sexual harassment”

The woman’s lawyer Josh Bornstein told Nine it was “bizarre” that the summary never mentions the phrase “sexual harassment”.

When the victim earlier this month publicly released details of her allegations out of frustration, AMP claimed much of it was not confirmed in its investigations.

But the summary now revealed shows the QC thought her recollections were accurate.

The woman’s lawyers have fought to get the finance company to release the board’s communications with the UK QC who led the investigation.

After the Pahari controversy played out in public, another alleged harassment victim told of her harrowing AMP experience to a Labor senator.

Senator Deborah O’Neill last week used parliamentary privilege to quote the correspondence sent her from “a heroic young Australian”.

“The harassment I suffered ranged from receiving sexually explicit photos and emails expressing a desire to have sex with me, constant and public propositioning, including in front of some of the company’s largest clients, physical harassment, including being touched repeatedly by a leadership team member at the office, a senior colleague groping me off site and another forcing himself on me by rubbing his genitals against me at a work function,” the victim wrote to O’Neill.

A matter of employee health and safety

One workplace equality academic has panned AMP’s handling of the Pahari scandal.

Australian Catholic University adjunct professor Lisa Heap said Australian corporate culture was too reactive on such matters.

“By all appearances, the [AMP] board’s approach in this case has been to treat sexual harassment as a risk to its share price, rather than a risk to the health and safety of its employees,” she wrote in The Conversation.

“Even in resigning Murray made it clear he backed how the board dealt with the complaint (docking Pahari a quarter of his A$2 million bonus in 2017).”

Heap said the reputational costs were “eclipsed” by Pahari’s “perceived value” to the company.

“Its reactive approach to sexual harassment is hardly unique… In fact, it’s a systemic feature of Australian corporate culture.”

AMP shares are trading at $1.51 on Monday morning, up 1.47%. The AMP share price was $5.25 as recently as March 2018.

More reading

• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 next week
• ‘Ethical’ share investors sell too quickly after bad news
• ‘Destroyed’: AMP faces more sexual harassment allegations
• 3 ASX dividend shares to buy before it’s too late

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In late morning trade the S&P/ASX 200 Index (ASX: XJO) has fought back from an early decline and is pushing higher. At the time of writing the benchmark index is up 0.25% to 6,088.2 points.

Four shares climbing more than most today are listed below. Here’s why they are charging higher:

The Costa Group Holdings Ltd (ASX: CGC) share price is up over 6% to $3.52. Investors have been fighting to get hold of the horticulture company’s shares since the release of its half year results. One broker that thinks they are in the buy zone is Morgans. This morning the broker retained its add rating and lifted its price target to $3.70.

The Harvey Norman Holdings Limited (ASX: HVN) share price is up 6% to $4.49. This retail giant’s shares were given a boost today after analysts at Citi retained their buy rating and lifted the price target on them to $5.00. This follows the release of its full year result late last week, which the broker thought was strong. It also feels confident another stellar six months is coming in the first half of FY 2021.

The NEXTDC Ltd (ASX: NXT) share price has climbed 4% to $12.37. This morning two leading brokers upgraded the data centre operator’s shares in response to its full year results last week. Morgans has upgraded NEXTDC to an add rating with a $13.89 price target, whereas Ord Minnett has upgraded its shares to an accumulate rating with a $13.00 price target. Last week NEXTDC delivered a 23% increase in EBITDA to $104.6 million.

The Splitit Ltd (ASX: SPT) share price is up almost 3% to $1.88 following its half year results. For the six months ended 30 June 2020, Splitit delivered a 133% jump in merchant sales volume to US$89.1 million. This led to the company reporting a 244% increase in gross revenue to US$3.1 million for the six months. Key drivers of its growth were solid increases in customer numbers and merchants.

More reading

• ASX 200 edges higher: Fortescue sinks, NAB sells MLC Wealth, Costa jumps
• Splitit share price drops lower on half year update
• Why the Nextdc share price gains could be just beginning
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• How to invest in ASX shares in uncertain times?

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The relentless Afterpay Ltd (ASX: APT) share price hit an all-time record high of $95.97 on Thursday. As investors digest its FY20 results and the overall state of the buy now, pay later (BNPL) sector, could it be an opportunity to buy the Afterpay share price? 

Afterpay FY20 results 

The acceleration of Afterpay’s business in new markets and continued dominance in existing ones has seen its underlying sales soar 112% to $11.1bn. Meanwhile, active customers have increased 116% to 9.9m and active merchants are up 72% to 55.4k.

From a regional perspective, Afterpay’s underlying sales in Australia and New Zealand increased 52% with in-store sales up 81% despite COVID-19 related impacts. What we are now seeing is a transition from ANZ being a growth driver to a more mature market. The US business’ sales leaped 330% with pipeline of new and integrating merchants more substantial than at any previous period.

Finally, the UK business is building momentum, generating $0.6bn in underlying sales or 5% of total group sales in its first full financial year of operations. The Clearpay brand has achieved and exceeded 1m active customers with major retail deals such as Gymshark. 

The dark side of Afterpay’s FY20 performance was its 73% increase in EBITDA to $44.4m. Upon closer inspection, $19.9m of its EBITDA increase was a result of ‘foreign currency gains’. Excluding foreign currency gains, the group’s EBITDA actually fell 4.9% on pcp. 

What are the next steps?

Afterpay has a number of plans for global domination. The business extended its North American reach to include Canada as of August 2020. It also intends to accelerate its expansion into Europe with the acquisition European BNPL ‘Pagantis’ which will provide it the opportunity to launch in Spain, France and Italy with regulatory approval to also operate in Portugal. The addressable e-commerce market in these four countries exceeds A$247bn.

Furthermore, an in-region team will be established via a small acquisition of a Singapore-based company operating in Indonesia called ‘EmpatKali’. Here, Afterpay intends to explore opportunities to leverage Tencent’s network and relationships to expand into new regions in Asia. 

Foolish Takeaway

The Afterpay share price has been propelled by back-to-back announcements from its positive business updates, Tencent’s substantial shareholding, customer milestones and its expansion into Europe. This has kept the company materially improving while bolstering sentiment. I believe if the company has run out of news and developments in the near-term, it is likely that the share price takes a breather at its current levels. 

More reading

• Why shares go low Mondays and high on Fridays
• Polynovo and 2 more ASX 200 shares to watch this week
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 3 of the best ASX tech shares to buy in September
• Why investing more in super can turbo charge your retirement plans

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post The Afterpay share price nears $100: buy, sell or hold  appeared first on Motley Fool Australia.

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The Bubs Australia Ltd (ASX: BUB) share price won’t be going anywhere on Monday after the infant formula company requested a trading halt following the release of its full year results and announcement of another capital raising.

How did Bubs perform in FY 2020?

For the 12 months ended 30 June 2020, Bubs reported a 32% increase in revenue to $62 million. This was driven largely by a 58% lift in infant formula sales to $30 million. They now represent 55% of group revenue.

Supporting this growth was a 32% jump in direct sales to China and a five-fold increase in sales to export markets outside China.

The higher weighting of infant formula sales and supply chain efficiencies helped drive improvements in its gross margin. That lifted to 24% from 21% during FY 2020.

However, this wasn’t enough to make its operations profitable. Bubs posted a statutory loss after tax of $8 million. Though, this was an improvement from a loss of $36 million a year earlier.

Management commentary.

Bubs’ Founder and Chief Executive Officer, Kristy Carr, was pleased with the company’s performance in FY 2020.

She said: “Thanks to the foundations laid by the Company over the last two years, Bubs has enjoyed a year of solid revenue trajectory across all core products and in all key markets. Despite the challenges caused by the COVID-19 pandemic, FY20 gross revenue increased 32 percent year-on-year to $62 million with second half revenue advancing 28 percent over last year’s second half gross revenue.”

“Infant Formula continued be our key driver and most profitable growth engine generating $30 million in revenue, up 58 percent, driven by strong growth in domestic retailers, Junior Nutrition innovation and expansion into Vietnam. The Bubs brand portfolio of products now accounts for 60 percent of group revenue, versus 49 percent in FY19,” Carr added.

Capital raising.

This morning Bubs requested immediate back-to-back trading halts be granted. This means its shares will be out of action until 4 September.

Bubs requested the halt pending an announcement in relation to a proposed capital raising. 

No details have been released as of yet. But with Bubs burning through its cash and about to embark on the launch of a vitamins range and looking into buying a stake in a China-based infant formula manufacturing facility, it looks likely to be in need of a decent capital injection.

According to the AFR, Bubs is seeking to raise $38.3 million at a sizeable 12.6% discount of 80 cents.

Outlook.

The chief executive acknowledges that FY 2021 will be impacted by COVID-19.

She said: “The new financial year outlook is likely to be coloured by COVID-19 and its impacts, resulting in new ways of doing business and engaging with consumers. Nevertheless, as a scale business we will continue innovate and look to new markets.

Nevertheless, Carr remains positive on the future.

“We expect Bubs Infant Formula to be the engine room for accelerated profitable growth across all key channels and markets. To that end, we can look to an aspirational revenue goal of $400 million and gross margin floor of 40 percent by 2025,” she concluded.

More reading

• 3 small cap ASX growth shares to buy right now
• Why Afterpay, Bubs, Fortescue, & Zip Co shares are charging higher
• Bubs share price storms higher on new China plans
• I’d buy this ASX share this week
• The smartest 7 ASX shares to buy if you have $2,000

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 BUBS AUST FPO. The Motley Fool Australia has recommended BUBS AUST FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Telstra Corporation Ltd (ASX: TLS) share price looks like a solid ASX dividend share to buy.

Shares in the Aussie telco have been smashed this year but I think there’s plenty to like about Telstra in 2020.

Telstra and 1 more ASX dividend share to buy

There are plenty of short-term headwinds for Telstra. The coronavirus pandemic impacted on the group’s full-year result and its outlook for FY21.

There’s also the ever-present headache that is the NBN. Telstra reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) down 9.7% inclusive of the NBN impact.

However, the good news for Telstra and its shareholders was around dividends.

Net profit after tax fell 14.4% to $1.8 billion and earnings per share slumped 15.5% to 15.3 cents. But the Aussie telco maintained its full-year dividend of 16 cents per share including a fully-franked 8 cents per share final distribution.

I think that’s enough for Telstra to still be considered a top ASX dividend share in 2020. A 19.0% share price drop is not good news but the 3.5% dividend yield is nothing to sneeze at in the current low interest rate environment.

Add to that a promising outlook for its 5G network capabilities and Telstra could be a cheap buy right now.

And Telstra isn’t the only ASX dividend share that I’ve got my eye on right now. ASX gold shares have been surging higher in 2020 and I like the look of St Barbara Ltd (ASX: SBM).

The Aussie gold miner reported a 5.4% increase in total gold production to 381,887 ounces at an all-in sustaining cost of $1,369 per ounce.

That saw net profit fall 24% lower despite EBITDA surging 26.1% higher to $442.9 million.

The Aussie gold miner paid out a full-year dividend of 8 cents per share. That translates to a 2.4% dividend yield which could make St Barbara a solid ASX dividend share for FY21.

Dividend-paying stocks are hard to come by right now given the uncertainty caused by the coronavirus pandemic.

However, gold prices are looking solid for the year ahead which could St Barbara delivers capital gains and income for its investors. 

Foolish takeaway

These are just a couple of the ASX dividend shares that caught my eye in the August reporting season. I think there are plenty of good buying opportunities on the market given the uncertain times ahead.

More reading

• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• Why I would buy these strong ASX dividend shares next week
• 5 top ASX dividend shares you should never sell
• ASX giants say cutting staff hours will save jobs
• Beat ultra low interest rates with these top ASX dividend shares

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Limited (ASX: FMG) share price has come under pressure on Monday and is one of the worst performers on the S&P/ASX 200 Index (ASX: XJO).

At the time of writing the iron ore producer’s shares are down 7.5% to $17.45.

Why is the Fortescue share price sinking lower?

Today’s decline is entirely attributable to Fortescue’s shares trading ex-dividend this morning, rather than anything operational.

When a company trades ex-dividend, it means its shares are trading without the rights to an upcoming dividend payment. In light of this, new buyers of its shares are unwilling to pay for a dividend they won’t receive and the share price will fall accordingly.

In respect to Fortescue, this morning the company’s shares traded ex-dividend for its final fully franked $1.00 per share dividend.

Based on its last close price of $18.87, this dividend represents a generous yield of 5.3%.

And while its shares have fallen more than this, I suspect that there is likely to be an element of profit taking going on today. Especially given its incredible share price gain in 2020.

Prior to today, Fortescue’s shares were up a remarkable 75% since the start of the year. This has been driven by the combination of a strong rise in the iron ore price, record shipments, and its improving grades.

The good news for shareholders is that the iron ore price is showing no signs of weakening. According to CommSec, on Friday the spot iron ore price rose by US$2.05 or 1.7% to US$123.25 a tonne. This compares very favourably to its C1 costs of US$12.94 per wet metric tonne.

If prices remain at this level over the remainder of FY 2021, another impressive result is likely.

Other shares trading ex-dividend.

Fortescue isn’t the only ASX share trading ex-dividend this morning.

Also falling for the same reason are the shares of personal care products company Ansell Limited (ASX: ANN) and waste management company Bingo Industries Ltd (ASX: BIN).

More reading

• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to sell next week
• 5 things to watch on the ASX 200 next week
• 2 top ASX shares I would buy now for shareholder value and dividend growth

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Today, there are a raft of ASX shares that are carving out a niche in business lending where Australian banks have failed to provide adequate services. This is despite the protected status of the big four banks under the government’s ‘four pillars’ policy. For example, with the exception of Commonwealth Bank of Australia (ASX: CBA), the rest of the major banks are mainly mortgage businesses. These include mid-sized banks such as  Bendigo and Adelaide Bank Ltd (ASX: BEN) and Bank of Queensland Limited (ASX: BOQ). 

And I believe this is only the beginning. Here are a range of ASX shares that have been so successful, the banks may have already lost the argument. 

Alternative finance

According to the University of Cambridge in the United Kingdom, alternative financing was worth $1.127 billion in Australia during 2018. This is the second largest market after China in the Asia Pacific region. However, I believe that if alternative financing was more available, it would be more widely used. One of my own frustrations when I owned a consultancy firm, was securing finance. Alternative financing can take a number of forms including invoice financing, equipment finance, and trade finance, for example.

Xero Limited (ASX: XRO) is a pioneering online accounting software platform. This market leading ASX share recently announced its acquisition of a business called Waddle, a software-as-a-service (SaaS) platform that provides invoice finance to small to medium enterprises. Specifically, it allows companies to borrow up to 80% of outstanding invoices. Then, on payment of the invoice, they receive the last 20% minus the loan fees and interest. This product looks pretty slick and is integrated with Xero.

Zip Co Ltd (ASX: Z1P) also purchased a small business finance company called Spotcap in 2019. This is yet another point of difference from its main competitor Afterpay Ltd (ASX: APT). It allows the ASX share to provide invoice finance and small business loans. The company’s share price rocketed on Wednesday last week after Zip announced a deal with the Australian arm of eBay Inc (NASDAQ: EBAY). Consequently, Zip Co will provide cash flow and trade financing for small to medium businesses on eBay via its Zip Business arm. 

Down the shallower end of the pond is CML Group Ltd (ASX: CGR), a pure play alternative financing company. It provides invoice finance, equipment finance and trade finance. CML Group recently purchased the platform now called earlypay.com. This is also integrated with Xero and other platforms. Furthermore, it provides the company with an engagement tool for repeat customers and automating work processes. 

ASX shares for business loans

Tyro Payments Ltd (ASX: TYR) is predominantly a payments processing company. However this ASX share also provides small business loans under the government guarantee. This is part of coronavirus assistance whereby the government guarantees up to 50% of the loan. Tyro is the largest authorised deposit taking institute to process payments after the big four banks. The company’s network of customers is a powerful asset. It means Tyro could easily offer additional services such as buy now, pay later (BNPL) at the point of sale for B2C businesses, or invoice financing for B2B companies. 

Prospa Group Ltd (ASX: PGL) is a company you don’t hear much about. It has, however, been diligently working away in the background as a lender to small businesses. In its recent results, Prospa showed a continued growth in sales which is very promising for a small company. It managed to increase its top line revenue by 4.2%, and has $55 million in unrestricted cash on hand.

More reading

• Why shares go low Mondays and high on Fridays
• Is the Zip Co share price too expensive to buy?
• ASX 200 Weekly Wrap: Earnings drag ASX back to reality
• 3 of the best ASX tech shares to buy in September
• Top brokers name 3 ASX shares to sell next week

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Tyro Payments, Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Domino’s Pizza Enterprises Ltd (ASX: DMP) share price has soared during COVID-19. Since bottoming out at a 52-week low of $41.66 during the mid-March market crash, Domino’s shares have more than doubled to $84.64 at the time of writing.

But with a price-to-earnings (P/E) multiple of around 50, is the Domino’s share price overvalued?

How has Domino’s performed recently?

In the company’s FY20 annual report, Domino’s reported global sales of $3.27 billion, an increase of 12.8% over FY19. Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at a record $303 million, while net profit after tax grew by 3.3% year-on-year to $145.8 million.

The strong result was driven by impressive gains in the Japanese market. Domino’s Japan delivered 25.9% growth in sales year-on-year, with 75 new stores opening across the country in FY20. Sales growth was a more modest 5.1% in Europe and 4.1% in Australia and New Zealand, with both of those geographies reporting small declines in year-on-year EBITDA.

The broad drivers behind the result seem obvious. With many countries around the globe implementing some form of lockdown to halt the spread of COVID-19, restaurants have been closed and consumers have been spending more time at home. In these situations, demand for home-delivered meals has increased. With the notable exception of France and New Zealand, Domino’s outlets have remained open in some form or another in most jurisdictions throughout COVID-19.

A similar set of drivers have been behind the enormous share price gains made by meal-kit delivery service Marley Spoon AG (ASX: MMM). That company has also reported huge spikes in revenues throughout the pandemic, and recently upgraded its 2020 revenue guidance for year-on-year growth of between 80% and 100%.

However, the key question is whether this sort of growth can persist as more geographies emerge from lockdowns. Once people can resume eating out at restaurants again, what will it mean for the Domino’s share price?

For its part, Domino’s maintains a fairly bullish outlook. It forecasts same stores sale growth in the range of 3% to 6% over the next 3 to 5 years, and has its sights set on having a global network of 5,500 stores by 2033 (it currently has 2,680 stores).

About the Domino’s share price

Personally, I’m kicking myself for not buying Domino’s shares back in March at the height of the global coronavirus panic. In the intervening months, the company has adapted well to the ‘new normal’ of social restrictions and rolling lockdowns, boosting digital sales channels and embracing COVID-safe strategies such as zero contact delivery.

However, I do tend to think that Domino’s shares are overvalued at current prices. With a P/E multiple approaching 50, this makes its shares significantly more expensive than ASX competitor Collins Foods Limited (ASX: CKF), which currently trades at a multiple of a little under 40. Collins Foods operates KFC restaurants in Australia, Asia and parts of Europe, as well as the Australian Taco Bell network.

That being said, I also think that Domino’s is a much better and more mature business than Collins Foods, with better long-term growth prospects. It’s just that excitement around its short-term performance has overinflated its share price. My advice would be to keep the company on your radar – if there is a pullback in the Domino’s share price, it could still be well worth adding it to your portfolio.

More reading

• Why Splitit and these ASX shares just hit new highs
• 3 stellar ASX growth shares to buy right now
• 3 quality ASX shares to add to your retirement portfolio
• How to turn $20,000 into $350,000 in 10 years with ASX shares
• Marley Spoon share price on watch after upgrading revenue guidance

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods Limited and Domino’s Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Electro Optic Systems Hldg Ltd (ASX: EOS) share price has dropped 7% as trade opened this morning following the release of its half-year results.

After Friday’s market close, the Electro Optic share price finished the day at $6.20, a gain of 5.6%. It’s now trading at $5.75. No doubt it will be an interesting day for the defence contractor as investors digest the company’s results.

How did Electro Optic perform in FY 2020?

For the first half of the financial year ending 30 June, Electro Optics Systems achieved a weak result for its full-year earnings.

Here’s a snapshot of what the global defence contractor reported.

• Revenue of $75 million, up 31% on prior corresponding period, despite COVID-19 supply chain disruptions to customers.
• Statutory net loss after tax was down 291% to -$14.3 million as revenue and profit is deferred into H2 2020 and 2021.
• Earnings before interest and tax (EBIT) excluding foreign currency (FX) gains came in at loss of $18.2 million, a fall of 288% recorded in 1H19.
• Statutory net loss after tax was down 291% to -$14.3 million.
• Statutory diluted earnings per share also fell 253% to -12.42 cents.
• Operating cash flow dropped to -$62.6 million.

Electro Optics Systems continued to strengthen its balance sheet with cash on hand of $128.1 million and minimal debt obligations. The company anticipates strong cash flow from major contracts over the next 12 months, beginning Q4 2020.

The board has continued to not declare a dividend for shareholders, instead opting to use its capital to reinvest in the company’s growth plans.

What did management say?

CEO Dr Ben Greene said the major impact of COVID-19 on the company has been to delay revenue, profit and conversion of pipeline to backlog. He said: 

As this impact unwinds, EOS is expected to grow strongly in 2021 and beyond, with growth expectations even higher than expected 9 months ago due to strong business tailwinds not previously expected.

Outlook

Electro Optics Systems reaffirmed its prior guidance for the full-year of an EBIT between $20–$30 million, and an underlying EBIT margin of ~10%.

The $570 million backlog consisting largely of defence products awaits to be fulfilled, however Electro Optic advised the contracts remained committed from their retrospective buyers.

The company expects its communications backlog to grow strongly as its subsidiary, EM solutions sells to NATO allies in Europe and North America.

In addition, the $3.1 billion pipeline is expected to be drive top-line growth within the next 36 months. Four programs of upwards to >$1 billion with awards are due in 2021 and 2022, with a further 18 opportunities valued in excess of $200 million.

How has the Electro Optic share price performed in 2020?

Electro Optic shares have risen 210% since falling to a 52-week low of $2.95 in March. However, the Electro Optic share price is down almost 21% since the start of the calendar year and 57% from its all-time high achieved in February.

More reading

• Why the Electro Optic share price rose 5% today
• New to investing? Here’s how I would make my first $100,000
• 3 ASX shares to buy and hold through COVID-19
• Here’s the best mid-cap growth share to buy on the ASX
• 4 ASX shares leading the way in drone technology

Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The idea of buying dirt-cheap stocks may not appeal to some investors at the present time. The prospects for many companies are currently challenging in an uncertain economic world, which could lead to disappointing share price performances in the near term.

However, over the long run, their low prices could mean that they produce higher returns than more popular assets such as gold. As such, now could be the right time to purchase undervalued stocks, rather than seeking to profit from gold after its recent price rise.

Current price levels

Since nearly all investors would rather buy assets when they trade at low levels, buying dirt-cheap stocks could be a sound long-term strategy. It may enable investors to purchase high-quality businesses while they offer wide margins of safety. This could lead to impressive returns as the world economy recovers in the coming years, and the stock market gradually returns to previous highs.

By contrast, the recent rise in the gold price may mean that new investors are purchasing the precious metal at an unfavourable price level. It recently hit a record high, which suggests that investors have already factored in a period of low interest rates and economic uncertainty. While it could trade higher in the coming months if recent economic trends continue, its capacity to produce sustainably high returns in the long run seem to be somewhat limited.

Past trends

Of course, some dirt-cheap stocks could be priced at low levels for good reason. For example, they may have weak balance sheets or find it difficult to adapt their business models to a changing world economy. However, the past performance of the stock market suggests that it is very likely to recover. Therefore, buying a diverse range of companies now and holding them for the long run could lead to strong capital growth. After all, no recession or stock market downturn has ever lasted in perpetuity.

Equally, the past performance of the gold price shows that it also experiences peaks and troughs. For example, it took the precious metal nine years to return to its previous high from 2011 after falling out-of-favour with investors during the equity bull market of the past decade. Therefore, it is very unlikely to continually make new record highs as the outlook for the world economy improves, and investors become more comfortable in taking greater risks with their capital.

Buying dirt-cheap stocks

Clearly, it is imperative to buy a diverse range of dirt-cheap stocks. It is too soon to know which sectors and regions will return to strong growth following the coronavirus pandemic. By having exposure to a wide range of geographies and sectors, you are more likely to benefit from a stock market recovery. Over time, this can have a more positive impact on your financial position than buying gold while it trades close to a record high.

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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why I’d buy dirt-cheap stocks instead of taking advantage of the surging gold price appeared first on Motley Fool Australia.

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