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A P/E ratio below 10 times! Is this FTSE 250 stock too good to miss?

Royston Wild
A person holding onto a fan of twenty pound notes

Money printer De La Rue (LSE: DLAR) has long been in the doldrums. Crushed by the steady rise of credit and debit cards, new methods of payment (like Apple Pay and Bitcoin) and the rampant adoption of e-commerce, demand for its banknotes has fallen off a cliff.

It’s a situation the FTSE 250 firm warned late last year and has pushed it to the brink of extinction. And it’s quite possible the coronavirus breakout has hastened its demise.

It’s common knowledge physical currency is one of the greatest transmitters of dangerous bacterium, such as salmonella and E.coli. There’s currently no evidence Covid-19 can be spread in the same way. However, with public panic at fever pitch, it comes as no surprise retailers the world over are reporting a boom in contactless payments at the expense of both note and coin transactions.

Cash under the cosh

Comments this month from the World Health Organisation (WHO) haven’t done much to soothe nerves, either. The body didn’t go as far as suggesting coronavirus could be spread through cash exchange. But in an interview with The Telegraph, a WHO official said: “We would advise people to wash their hands after handling banknotes, and avoid touching their face.”

You can sense the degree of teeth gnashing that must have been going on at De La Rue afterwards. This is a company that’s seen profits halve over the past five fiscal years as consumers dump cash in favour of younger technologies.

Although the British company doesn’t print or mint for the US, the most recent numbers from the Federal Reserve System’s Cash Product Office mirror the decline of cash usage across the globe. This showed the minority share of physical money used in total transactions crumble even further in 2018. It dropped a full four percentage points year-on-year to 26%.

It’s low cost for a reason…

The stock market sell off of the past month leaves a lot of UK equities looking mightily attractive. Some of these I would consider a risk too far in normal times. However, the low price-to-earnings (or P/E) ratios that many businesses now command means they could well be considered ‘worth a punt’.

Could De La Rue fall into this category? Right now, it boasts a forward P/E ratio of just 2.6 times for the fiscal year to March 2021.

Critically, though, this is a multiple built on City forecasts that annual earnings will surge 69% in the upcoming period. It’s a figure I expected to be chopped down before long, together with the 30% rise predicted for financial 2022.

In fact, De La Rue’s a company that might not even be in existence by then. This is a share to be avoided at all costs, despite its cheapness.

The post A P/E ratio below 10 times! Is this FTSE 250 stock too good to miss? 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 2020