Melrose share price is up by more than 2.24% today, becoming the second-best performer in the FTSE 100 after Smith and Nephew. The shares are trading at 116.35p, while the FTSE 100 is down by more than 0.80% today.
What is Melrose Industries?
For starters, Melrose is a major company in the United Kingdom. It is best-known for buying companies in key industries and helping them become better. Some of the companies it owns are GKN Aerospace company, which supplies airframe and engine structures to airline manufacturers like Airbus.
It also owns GKN Automotive, which provides products like the conventional, all-wheel, and electrified drive systems. Its GKN Powder Metallurgy provides powder metal solutions while the Nortek Air and Security provides ventilating solutions. It buys companies, improves them, and then sells them.
In 2019, the company generated more than £10.96 billion and profit before taxes of more than £106 million. Its EPS grew by about 13 per cent in the year. In the most recent quarter, the company became among the first companies to suspend its dividend in its bid to preserve cash. It also withdrew its guidance for the year. The management said:
“While the current circumstances are unparalleled, Melrose has a track record of managing our businesses successfully in tough times and we thank all our employees for their extraordinary efforts to ensure this happens again. We have taken very significant action to mitigate the effect of this unprecedented crisis.”
Is Melrose Industries Share Price a Buy?
Melrose Industries Share Price has had a bad performance in the past three years mostly because of the disruptions brought by Brexit. The share price has declined by more than 52% in the past three years and by 45% in the past two years. In the past six months, the company’s shares have declined by more than 52%.
However, they have bounced back by about 46% in the past three months, becoming among the best-performing in the FTSE 100. As I wrote yesterday, Ocado share pricewas the best-performing in the index, gaining by more than 78%.
At the current price, Melrose is clearly undervalued. For example, in the past three years, the company has had a revenue CAGR of 131%, which is above what many peer companies have performed. Analysts expect the company to have a CAGR of 5% this year, which is modest considering there are many things about the virus that we don’t know.
A big challenge for Melrose is that the risks for a no-deal Brexit are rising. Analysts still expect the two sides not to reach a deal in the discussions going on this week. Without a deal, Melrose share price will be in peril because most of its customers in the European Union. Also, there is a risk of higher costs, which will affect its profitability.
So, is it advisable to buy Melrose Industries Shares? While the stock is clearly relatively cheap, I believe there are better buys in the FTSE 100. I recommend buying shares in high-growth companies like Ocado, Avast, RightMove, Barclays, and Taylor Wimpey among others.
Melrose Industries Share Price technical analysis
The Melrose Industries Share Price is currently trading at 116.50. On the daily chart, this price is slong the 50-day exponential moving averages and below the 100-day EMA. The price is also along the 23.6% Fibonacci retracement level.
Also, the price has been in consolidation in the past few days. Therefore, at this level, in the medium-term, the outlook for Melrose Industries Stock Price, is neutral. That is because it may break out in either direction.
As such, the levels to watch will be the upper side of the consolidation at 126.45p and the lower side at 110.10p. A move above the price is likely to see it continue rising because it will send a signal that there are more buyers in the market.