Stock market

A dip may be worth buying for this FTSE 250 stock today, down 7% today

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I’m the biggest faller FTSE 250 As of today (May 29). iwg (LSE: IWG) stock is down 7%, reflecting some short-term negative news. However, the stock is still up 37% over the past year. When I look closely at the business, I think it might just be a dip. Here’s why.

Details of this move

The news that is causing the stock to sink sharply has to do with the CEO, Mark Dixon. He sold 35 million shares in the business, generating tens of millions of pounds in the process. The funds are to be used to repay the covenants and loans with one of its banking providers.

Naturally, when a CEO sells such a large amount of stock at once, the share price will drop. This is not only related to the transaction itself, but also to what other investors see and choose to sell. The thought here might be that if the CEO is selling, does he know something that we don’t?

Dixon’s actions are also closely watched as he is by far the largest shareholder. Before the sale today, it owned 25 percent of the outstanding stake, which is about 25,255m. It is quite unusual to have a CEO with such a large stake in a business. However, investors need to remember that they are also founders.

I don’t care why

I’m sure it’s just a dip based on a few reasons. Dixon had 255 million shares. He has sold 35m, which sounds like a lot, but based on his overall holdings it’s not a huge amount. It’s not like he sold his entire stake in the business.

Dixon has a solid reason to sell based on a separate need for cash. Nowhere does it say that he sold the stock because he thought the share price was overvalued. Put another way, it was a trade not for speculative purposes, but for transactional necessity.

Finally, when I consider the pace at which the firm is moving, I struggle to see this fall in the months ahead. The full-year results for 2023 began by noting that the firm had “Highest revenue delivery ever in IWG’s 35-year history”.

A 10 percent jump from 2022 helps drive strong cash flow and ultimately a 34 percent increase in EBITDA from last year.

Watch out for the pitfalls

There is always a reason to be cautious. In this case, I am concerned that the business is still posting an after-tax loss. This has been the way since the pandemic in 2020. It’s true that hybrid workspace setups have changed a lot since then. I would argue that the IWG is well positioned to tackle this axis in the long run. Yet it may take years before the business returns to profitability.

The danger is that it doesn’t. Investors can quickly become alarmed upon realizing this.

Even so, I think today’s reaction is still subdued. Based on this, I’m thinking of buying the stock soon, looking for higher returns in the coming months.


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