Some stocks look cheap to me due to macroeconomic pressures holding them back. One FTSE 250 stock I believe could be a great recovery play for my holdings is Biffa (LSE:BIFF). Here’s why.

Waste management

Biffa is one of the UK’s leading waste management companies. It specialises in several areas of waste management. These include collection, surplus redistribution, recycling, treatment, disposal, and energy generation of waste. It is supported by over 9,000 employees and covers 95% of UK postcodes.

As I write, Biffa shares are trading for 354p. At this time last year, the shares were trading for 230p, which is a 53% return over a 12-month period. Since its half-year results were posted in November, however, the shares have stagnated, despite good news. Under normal market conditions, I would have expected the shares to rise.

Macroeconomic pressures and risks

Many FTSE 250 stocks have suffered due to macroeconomic headwinds. These issues seem to be rising interest rates and inflation, which has led to a spike in costs. In addition to this, the supply chain crisis has hampered performance and progress for many firms. Finally, the HGV crisis and effects of pandemic on the UK’s workforce, have also hindered many companies, Biffa included.

Biffa’s progress has been halted mainly due to the HGV crisis, workforce issues, and rising costs, in my opinion. All of these are short/medium-term issues, in my eyes. Operations being affected and margins being squeezed can spook investors, often leading to share prices falling or stagnating.

A FTSE 250 recovery play

I like Biffa as a recovery play for my holdings. Firstly, it has a good track record of historic and recent performance. I do understand that past performance is not a guarantee of the future, however. Its most recent FY 22 interim report, released in November, was excellent. The report covered the 26 weeks ended 24 September 2021. It reported revenue increased by 39% compared to 2020 levels and 14% compared to 2019 levels. Full-year guidance was on track and the strong performance resulted in a 2.2p dividend per share being declared.

When Biffa reported these results, the share price dipped. It is down from 395p at the time of the report being released to current levels, which is a 10% drop. Performance was strong and a dividend is a bonus. Dividends help me make a passive income but can be cancelled at any time.

Biffa’s performance and dividends are attractive but its position in the marketplace is also a bonus. It is the leading provider of waste management solutions and is one of the most recognised brands in the space. It has historic roots stretching back over 100 years and has a large market share in the waste management industry here in the UK.

Overall I think Biffa is an excellent FTSE 250 recovery option for my portfolio. I do understand why the share price has dropped since the last results and I am aware of macroeconomic risks. My confidence in Biffa being a good addition to my holdings stems from its recent performance, the fact it is doing well enough to pay a dividend, and its position in its respective market. I would happily add the shares to my holdings.

Jabran Khan 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.

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Yesterday was a tough day for PayPal (NASDAQ:PYPL) shareholders. The stock fell almost 25% to close just above $132, wiping tens of billions of dollars off the company valuation. The release of quarterly results was the main driver behind this fall, but the size of the tumble has caught a lot of people’s eyes. Is the PayPal share price now at a bargain level that I should take a look at?

Results miss expectations

Firstly, let’s consider the results. Net revenues came in at $6.9bn, growth of 13% year-on-year. For the full-year, revenue grew by 17%. Operating income for the quarter also grew by 11% on the same quarter last year, at $1.1bn. 

This all seems positive, but two parts led to the move lower in the PayPal share price. Firstly, the results weren’t as good as the market was expecting. For example, let’s say I was expecting revenue to grow by 50% and it actually grew by 13%. I’d be unhappy in this scenario. On the flipside, if I was expecting revenue to fall and it grew by 13%, I’d be overjoyed. So the point here is that the results weren’t as good as expected, despite the business still showing growth.

The second part that contributed to the move lower was the revised outlook. For example, for the Q1 2022 period, analysts were expecting non-GAAP earnings per share of $1.16. In the prior year period, PayPal had achieved $1.22. Yet the new revision is set at just $0.87 per share. If I want to get really specific with the numbers, this expected drop in earnings per share is equivalent to 25%, which matches up to the fall in the PayPal share price yesterday.

Finding value in the PayPal share price

One point I’ve flagged in the past with growth stocks like PayPal is that the market places a premium on future earnings. The price-to-earnings ratio is very high for stocks like this one. The reason for this is that investors place more value not on current earnings, but future earnings. If the company grows as quickly as some expect, then these earnings make the stock fairly priced, or even undervalued!

That’s why I think the PayPal share price got hit so hard this week. If earnings are going to be lower in Q1, what does this mean for the rest of 2022 and beyond? Key drivers for the weaker outlook are lower active accounts and lower spending. This is partly due to the pandemic, given that PayPal is a key online payments facilitator. With people now out and about more, demand is perhaps likely to wane.

Further damage is being done by the fact that eBay is now paying sellers directly, not using PayPal as its main service provider. 

On balance, I do think that the correction in the PayPal share price makes sense. I’m also not keen to invest right now until the dust has settled. Until the company provides clear direction on the strategy for growth post-pandemic and post-eBay, I think I can find better options. 

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended PayPal Holdings. 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.

I’m thinking about adding these dirt-cheap stocks to my shares portfolio. Each trades on a bargain-basement price-to-earnings growth (PEG) multiple below 1.

Making an impression

4imprint Group’s (LSE: FOUR) a great way to ride the continued rebound in marketing spending in my opinion. The business generates almost all of its profits by making and selling promotional products in the US. You know the sort: mugs, pens, USB dongles, bags and the like. This is a steadily-growing industry in which 4Imprint has been relentlessly grabbing market share.

City analysts believe earnings will rise 46% year-on-year in 2022. This leaves it trading on a PEG ratio of 0.7, a decent distance below that benchmark of 1 that suggests a stock could be undervalued. Orders at the business are bouncing back strongly and the total tally for 2021 recovered to an impressive 90% of pre-pandemic levels. Pre-tax profits came in towards the upper end of expectations for the full year, too, a good omen for the new year.

4Imprint could encounter problems if the US economy begins to stutter, however. A surprise drop in non-farm jobs in January — the first drop since the end of 2020 — certainly caught my eye this week. But as things stand I think there’s more to be encouraged about than worried by at 4Imprint.

A mega-cheap leisure stock

Now that Covid-19 lockdowns have ended, Britain’s ten-pin bowling craze of recent years has exploded again. Ten Entertainment Group (LSE: TEG), which operates almost 50 bowling centres across the UK, is a cheap stock that’s obviously well placed to play this boom.

Ten Entertainment’s sales soared an astonishing 32.4% between 1 May and Boxing Day from pre-pandemic levels. The leisure stock’s January trading update also showed the business had record profits each month since June 2021. Given this evidence it’s perhaps no surprise that City analysts think profits here will soar 260%+ in 2022.

Encouragingly Ten Entertainment is adding venues to maximise its revenues opportunities too. It plans to open four new bowling centres this year alone. The ongoing public health emergency poses an obvious risk as further social restrictions could transpire at short notice. But I think the company’s cheapness reflects this possibility. Ten Entertainment carries a forward PEG of just 0.1.

In the fast lane

I also think Wincanton (LSE: WIN) has a bright future as e-commerce steadily grows. The transport titan offers a range of end-to-end fulfilment services that enable retailers and manufacturers to reach their customers. And it continues to do a roaring trade despite the end of coronavirus lockdowns on physical retail; revenues in its Digital and eFulfilment operation surged 51% year-on-year in the three months to December.

My chief concern for Wincanton is a chronic shortage of van and lorry drivers. This has the potential to cause operational disruptions and push up costs. Still, City forecasters don’t think this will derail near-term earnings growth (an 18% profits rise is predicted for this fiscal year to March 2022. A 9% increase is anticipated for financial 2023 too). I think Wincanton’s forward PEG ratio of 0.6 could make it too cheap for me to miss.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 4imprint Group. 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.

Early 2022 continues to be a trying time for UK investors. I think there’s one FTSE stock whose owners are feeling the pain worse than most.

70% down! 

Online electrical-goods retailer AO World (LSE: AO) was a huge beneficiary of the multiple UK lockdowns. The once-in-a-lifetime pandemic temporarily turbocharged revenue at the Bolton-based business and nimble investors charged in while the going was good.

Since then, however, it’s all been downhill. In fact, the share price has now crashed 70% in the last 12 months. If anything, this highlights the risks involved in buying single company stocks lower down the market spectrum. It also serves as evidence that not every online retailer will thrive. 

As someone who isn’t afraid to adopt a contrarian mindset in the pursuit of long-term gains, I’m pushed to ask whether such a huge fall in the share price is justified. Regrettably, I think it is. In fact, I think the outlook looks increasingly bleak for the shares.

Strategic review

Last month’s Q3 update hardly inspires confidence. While UK revenues were “broadly stable” on a one-year comparative, the company is clearly finding things a lot harder in Germany. According to AO World, trading in the latter has been “significantly impacted” by a toxic mix of increased competition, higher marketing costs and supply chain disruption. Since these trends are expected to continue “for the foreseeable future“, it’s now conducting a strategic review of this division.

If AO World had a global presence, such a move wouldn’t worry me so much. But knowing that Germany represents its only other market — ironic given the company’s name — is deeply worrying.

Shorters assemble 

It’s not just me thinking things could get even tougher for AO World. Right now, the battered growth stock is the fifth most shorted company on the London Stock Exchange. In other words, a significant number of people are betting that the share price still has further to fall. 

For balance, it’s worth remembering that shorters can sometimes be spectacularly wrong in their judgement. If trading recovered then those betting against the company would be forced to close their positions as quickly as possible to avoid huge losses. This activity, when combined with long-only investors piling in, could theoretically lead to this FTSE stock’s value exploding. AO World’s small free float (the percentage of a firm available to buy and sell on the market) might help to move the needle to an even greater extent.

How likely is this to happen? The odds aren’t great based on what I’m seeing.

Better bets than this FTSE stock

Now, AO World can talk all it wants about the rise in online shopping. To stand a chance of making me money, however, I need to see that it’s taking the battle to the substantial competition it already faces. The trouble is, I’m struggling to spot the ‘moat’ that master investor Warren Buffett advises we all hunt for.

If I were looking to invest my finite capital in UK growth stocks today, I’m certain that this FTSE stock wouldn’t get on my buy list. Why take the chance here when I can buy quality companies like these that should compound in value over many years instead?

Paul Summers 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.

Electric vehicle (EV) stocks have underperformed in 2022. Just look at the share prices of Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID). Both of these stocks are down more than 25% year to date.

Personally, I’m not surprised by the poor performance in this area of the market. One of my stock market predictions for 2022 was that small EV stocks would underperform. Has the recent weakness across the EV sector provided a buying opportunity for me though? Let’s take a look.

What’s next for Rivian and Lucid?

While EV stocks like Rivian and Lucid have all bounced a little recently, I think downside risk remains.

For starters, valuations are still quite high, even after January’s falls. At present, the market capitalisations of these companies are $63bn and $46bn respectively. Meanwhile, the forward-looking price-to-sales ratios of these companies are 18 and 21. Given that both EV companies have only produced a small number of vehicles, I see these figures as very high. If they suffer from operational challenges (like semiconductor shortages), their share prices could take a big hit.

Secondly, both of these companies are generating big losses right now and aren’t expected to turn a profit for years. In 2022, analysts expect Rivian to post a net loss of $4.7bn and Lucid to post a net loss of $1.7bn. Recently, appetite towards the stocks of unprofitable companies has really deteriorated due to the fact that the US Federal Reserve is in a tightening cycle. I think sentiment towards these kinds of stocks could get worse before it gets better.

Look out for the short sellers

Finally, both of these EV stocks have very high levels of short interest right now, which indicates that hedge funds and other sophisticated investors are betting that their share prices will fall. At present, Rivian has short interest of around 23% while Lucid has short interest of around 20%. I tend to view a short interest figure of more than 5% as a red flag because it signals that a lot of short sellers are downbeat on the stock. And that’s not a good thing as short sellers tend to do their research.

Of course, short sellers don’t always get it right. However, they’ve certainly had success with small EV stocks in the last year. Nikola, Workhorse, and XL Fleet are just some of the EV stocks that have been targeted by them. All are down more than 70% over the last year.

Better stocks to buy

I’ll point out that both Rivian and Lucid are exciting companies that have excellent products. I expect these companies to generate strong sales growth over the next few years as EVs go mainstream. Both could potentially capture market share from industry leader Tesla.

However, to my mind, neither EV stock offers a favourable risk/reward proposition right now. So, they’re not on my ‘best stocks to buy’ list at present.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

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Shares in Chinese electric vehicle (EV) manufacturer NIO (NASDAQ:NIO), which are listed in the US, have had a very poor run recently. This year, NIO’s share price has fallen 25%. Meanwhile, over the last 12 months, it has fallen nearly 60%.

When I last covered NIO stock, near the $40 mark, I had concerns about the valuation. But after the recent share price fall, the valuation is a lot lower. Is now the time to buy NIO for my portfolio? Let’s take a look.

Is it time to buy?

While NIO’s share price has taken a big hit recently, the growth story here still appears to be intact. In 2021, for example, the firm delivered 91,429 vehicles. That represented growth of 109.1% year on year. Meanwhile, the group’s January 2022 update showed that it delivered 9,652 vehicles last month. That represented growth of 33.6% year on year.

It’s worth pointing out, however, that growth has slowed considerably recently. If we go back to the January update from last year, it saw growth of 352% year on the year for the quarter. This slowdown is something to keep in mind.

Is NIO stock cheap?

As for the valuation, this doesn’t look so excessive anymore.

NIO doesn’t have a price-to-earnings (P/E) ratio as it doesn’t have any earnings yet. But it does have a price-to-sales (P/S) ratio and that’s a little under four on a forward-looking basis. That actually seems quite reasonable to me.

To put that number in perspective, Tesla, Rivian, and Lucid, have P/S ratios of around 11, 17, and 22, respectively. So, on a relative basis, NIO stock actually appears to offer some value right now, in my view.

Risks to consider

There are risks to consider here though.

I still think competition from rivals is a major risk. What many people don’t realise is that there are a lot of EV manufacturers operating in China today including BYD, Xpeng, SAIC Motor, Ford, Tesla, and Porsche. So, there’s no guarantee that NIO will be a big player in the Chinese EV market. 

It’s worth noting that the average selling price of a NIO vehicle is currently about $70,000. This means a lot of Chinese consumers won’t be able to afford its EVs for now.

Could the regulators come for it?

Another issue is regulatory risk. Recently, Chinese regulators have been cracking down on companies listed in the US. As a result of pressure from regulators, Didi Global – which is seen as the ‘Uber of China’ – recently announced that it would be delisting from the US market. Could the same thing happen to NIO? We can’t rule it out.

Better stocks to buy

Given the risks here, I’m going to keep NIO on my watchlist. I do think there’s some value on offer at the moment. However, given the risks, it doesn’t make my ‘best stocks to buy’ list right now.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.