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The Dignity share price is soaring! Should I buy today?

·2-min read
Image of person checking their shares portfolio on mobile phone and computer

The Dignity (LSE: DTY) share price is rising strongly again on Thursday. At 751p per share, the UK business is up 4% from last night’s close. It had struck its most expensive for two-and-a-half years earlier today above 792p. And it’s up more than 200% over the past 12 months.

But should I buy this UK share today?

Dignity plans huge changes

The funeral services provider has soared over the past couple of days after laying out a new trading strategy. Dignity said it was tearing up contracts with five of its telephony partners which it deemed as “uneconomical” and also “not representative of the high standards we would expect.”

This would hit funeral revenues by 35% in 2021, it said, though this would be “largely mitigated” through cost savings.

The company also said it plans to prioritise investment “into standards of care [and] facilities and our estate,” while it will also spend on “a combination of a competitive pricing and product mix, cultural change and stronger branding.” Dignity hopes these plans will give it a 20% share of the funerals market in 10 years, up from 12% right now.

Across its other operations, Dignity plans to increasing both volumes and yield per crematoria by increasing throughput and growing ancillary sales. Increasing capacity at existing crematoria and continuing to build its pipeline of new facilities are also on the agenda. It also plans to “[embrace] direct cremation and become price leaders for the location agnostic value segment of the market.”

Profits drop at the UK share

In other news, Dignity said underlying operating profit during the 21 weeks to 21 May clocked in at £30.7m. This was down fractionally from the corresponding period last year. The UK share said this was because of lower deaths in the period, though higher average revenues helped offset the decline.

So where do I stand on the Dignity share price? Well, it’s said that death and taxes are the two certainties in life. And, theoretically, this should make this one of the most stable stocks out there, regardless of broader economic conditions.

That said, I won’t be investing my hard-earned cash in Dignity today. The overhauls it’s announced this week reflect the growing pressure it faces from the Competition and Markets Authority (CMA). A multi-year investigation by the regulator has recommended better price transparency along with the introduction of an industry inspector.

Too much risk

What’s more, in last October’s report, the CMA floated the idea of another market investigation being launched when conditions get back to normal following the Covid-19 crisis. Measures to cap funeral costs remain a real possibility that Dignity may have to tackle later down the line.

Today, the funerals giant trades on a forward price-to-earnings (P/E) ratio of 16 times. It’s a reading that isn’t cheap enough to tempt me to invest, given these risks. I’d rather buy other UK shares for my stocks portfolio today.

The post The Dignity share price is soaring! Should I buy today? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021

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