This FTSE 100 stock has plunged 13% today! Is it a buy on dip?

A dip in FTSE 100 stocks’ prices can be a great opportunity to buy shares I want in my investment portfolio, at a relatively low price. But sometimes dips can also be red flags, especially when the broader markets are doing well. So I find it instructive to dive into the stock’s particular story to understand what is really happening and what my next steps should be. 

Pearson drops on trading update

This is the case for the learning company Pearson (LSE: PSON). The share price has dropped a huge 13% in today’s trading so far, following the release of its trading update. The company has shown a 10% increase in underlying revenue for the nine months ending 30 September, compared to the year before. In itself, this does not sound too bad a growth rate. It is, however, a slower growth than the 17% seen for the first half of the year. This possibly explains investors’ disappointment in the results.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

The upside to the FTSE 100 stock

But the fact is, that Pearson’s revenues have been declining for years now. Between 2016 and 2020, they fell by almost 25%. So I am not particularly discouraged by the latest slowing down in growth. In fact, it is a good sign that its revenue is actually growing at all. It has also reported a reduction in net debt, which I think is a positive for all companies, especially while there are still risks to the global economy. 

I also like that its biggest revenue generating segments have seen strong growth. Its ‘Assessments and Qualifications’ segment, which accounts for around 35% of its total revenues, has managed to maintain healthy growth despite some softening in the latest quarter. Its growth up to September is at 24% for the nine-month period. 

Positive changes for the safe stock

The company is also in the process of reinventing itself for the digital world, stepping away from its reliance on traditional education-related publishing, with the Pearson+ app. Since its launch in July, it has registered 2m users, which is encouraging. It remains to be seen whether the company will thrive with this change in track, but it does seem like a step in the positive direction. 

It is also a stock for the risk averse. If there were to be a recession in the future, demand for educational products and services is likely to be affected in a limited way. So buying the Pearson stock can be a good way to diversify my portfolio. Also, it pays a dividend. Its yield is not high at 2.7%, but I don’t mind an extra bit of cash coming in either.

Somewhat pricey

I think its price-to-earnings (P/E) ratio is high at close to 20 times. The average P/E for the FTSE 100 index is at around 15 times, so this is clearly significantly above that. There are a number of other stocks that have similar or lower earnings ratios but have at least in the recent past performed quite well, including miners, and non-essential retailers. To that extent, I think its attractiveness is diminished. 

What I’d do

All things considered though, I will wait for its detailed set of results before taking a call on whether to buy the stock or not, never mind the dip.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.

Comments are closed.