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The Keywords Studios (LSE: KWS) share price popped almost 7% on Monday when the market opened after the release of a trading update. Let’s take a look to see if I should buy Keywords Studios for my portfolio.

The trading update and growth prospects

As a quick recap, Keywords Studios in a technical services provider to the video games industry. It operates across seven divisions, including Game Development and Localisation. The company has an impressive customer list as it provides services to the likes of Electronic Arts, Microsoft, and Activision Blizzard. This says to me that the company’s services are of a high standard.

It’s easy to see why the share price rose today. Revenue for the full year is expected to be €505m, a 35% hike year-on-year. Adjusted profit before tax should be in excess of €85m too, a 55% year-on-year rise. What’s also great about this performance is that it will beat current analysts’ consensus forecasts.

The company put this excellent financial performance down to the demand for its services being high due to the buoyant video games market. I see this continuing long into the future due to the expanding gaming sector. There are big catalysts going forward, such as from augmented reality and virtual reality (AR and VR), plus the e-sports sector. Keywords Studios should stand to benefit from these trends.

Keywords Studios also said it has benefitted from a reduction in costs related to Covid, specifically from “remote working, property costs, travel and business development.” I view the reduced property costs as a longstanding saving for the company as remote working is more popular now. This should lead to increased profit margins in the years ahead. However, the reduction travel and business development costs may only be a one-time benefit which I think will reverse when travel restrictions ease.

Risks to consider

There are always risks to keep in mind with any potential investment, and Keywords Studios is no different. In the past, I’ve been concerned about how acquisitive the company has been. Since the initial public offering (IPO) in 2013, Keywords Studios has completed over 50 acquisitions. This is over six per year. Acquisitions can be an excellent way to grow a business, but there’s no guarantee they will be successful. The fact that Keywords Studios’ management has to analyse and integrate so many acquisitions per year may also become time consuming as the business grows further. The company has managed this very well so far though.

The valuation also stopped me buying the shares in the past. Based on a forward price-to-earnings (P/E) ratio, the stock is currently valued on a multiple of 35. I still view this as a touch high, but this is now much lower than the P/E ratio of 49 from last year.

Keywords Studios stock: is it a buy?

I’m considering buying the stock today after the trading update. Keywords Studios is operating in a sector with strong catalysts for growth. The company has also been able to control costs well during the pandemic. The valuation is more compelling than it was last year too.

So the stock is a buy for my portfolio.

Dan Appleby has no position in any of the shares mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Keywords Studios and Microsoft. 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.

As we begin the last major trading week of the year, the FTSE 100 has got off to a terrible start. It currently trades at 7,105 points, down 165 points on the day. This equates to a 2.24% drop. Given that the index was trading easily above 7,300 points earlier in December, there have clearly been a few reasons for the sudden shift in direction. Here are a few of the issues that I can point to at the moment.

Potential for tighter restrictions

The major reason that I’m seeing for the FTSE 100 slump this morning is heightened fears over stricter Covid-19 restrictions. The spread of Omicron has been substantial, particularly over the past few days. The daily case numbers yesterday stood at just over 82,000, double what we had at the beginning of the month. 

Although there are some suggested work-from-home guidelines in place, it’s becoming more and more likely that we’ll have tighter restrictions in place soon. This negatively impacts the operations of companies within the FTSE 100. For example, those in the travel and tourism sector will have lower demand if people have to stay at home. In the retail sector, high case numbers could mean a struggle to get staff to work in shops.

At a broader level, restrictions have in the past been damaging to economic growth in the UK. This negative sentiment is clearly affecting the FTSE 100 this morning.

Oil prices falling

A second reason for the FTSE 100 moving lower is a fall in oil prices. WTI is down almost 5% today, trading at $67.50 per bbl. The FTSE 100 is home to several large oil companies. These include Royal Dutch Shell, Glencore and BP. It’s no surprise then that these companies are also heavily in the red this morning.

For example, Royal Dutch Shell shares are down almost 3%. According to volume data, it’s the most heavily traded share so far today in the index. 

Given that the FTSE 100 is a market-cap-weighted index, the large oil companies can disproportionally pull the overall number lower. So part of the drag as I write today is due to the oil companies struggling with prices coming lower.

FTSE 100 weighed down by rate hike

The final reason I’d note is more of a carry-through move from last week. On Thursday, the Bank of England decided to raise interest rates to 0.25%. This is negative for most stocks as it makes it more expensive for companies to issue and finance new debt. We did see the FTSE 100 fall somewhat on the announcement, but not by that much. 

However, now that the market has fully digested the report over the weekend, some of this move lower today could be linked to the rate hike. Given the concern around Omicron, investors could also be worried that the rate hike was the wrong decision.

Overall, the FTSE 100 is clearly struggling today. Yet short-term moves don’t always reflect the long-term direction. In fact, I can often use drops like this to buy some of my favourite shares at cheaper levels.

As I was expecting volatility, I’ve already prepared my watchlist of top stocks that I’d consider buying on a Covid-19-related dip like this. Here are two that I like right now.

Jon Smith and The Motley Fool UK have 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.

Despite a 13% rally on Friday, last week skimmed over 20% off the Boohoo (LSE: BOO) share price. The stock has struggled over the course of the year and investors have seen the share price of the online fashion retailer plummet 65%.

This raises the question: why have we seen such a downward trajectory in the Boohoo share price? And, more importantly, can it make a recovery from its poor form seen over the past year or so? Let’s take a look.

Boohoo earning report

The main reason for the latest fall was the release of the firm’s trading update. The central takeaway that hurt investor confidence was its guidance cut. The business blamed this on higher than expected returns rates, along with continuous delivery disruptions as Covid-19 continues to put a halt to normal proceedings. As such, management has adjusted full-year guidance. Safe to say, this did not sit well with shareholders.

What this translated to was a cut in total sales growth, with estimates now placed at 12%-14%. This was a large cut to the original 20%-25% guidance. Adjusted EBITDA margin guidance also saw a drop, of around 3%, to between 6% and 7%. For a potential investor like myself, this was not positive news.

However, and as my fellow Fool Zaven Boyrazian highlighted, there were some positive signs in the update. Most notably, the last nine months have seen double-digit sales growth, sitting at £1.48bn. That’s a 65% increase from the same period in 2019. The firm also said it continues to invest in its distribution network, with its first US distribution centre expected in 2023. That is important as fulfilling international orders from the UK dented global sales in the latest period. This investment demonstrates that, despite the short-term issues Boohoo may be facing, it certainly has long-term potential.

I’m still cautious

Yet I do have further concerns with Boohoo. One is competition, partly coming in the form of Chinese online fast-fashion retailer Shein. That business has experienced major growth recently, bringing in nearly $10bn of sales in 2020 – its eighth consecutive year of revenue growth above 100%. Forecast sales for the next year are just below the $15bn mark, showing the threat it poses to Boohoo. However, Boohoo is not alone in its struggles. And not all its competition is enjoying similar success to that of Shein. For example, ASOS has also suffered this year, with its share price down over 50% year to date.

Another concern for me is the reputational issues that continue to hang around. More specifically, accusations against suppliers paying workers below the minimum wage. This has massively dented Boohoo’s reputation — adversely impacting the share price.

My outlook

Boohoo’s return to its 410p high always looked to be an uphill battle, but it seems this latest update has rubbed salt in the wounds. While the update did offer glimmers of hope, the adjusted guidance reinforced the negative impacts Covid has had on businesses such as Boohoo. The 24% fall last week represents only a small part of what has been a poor year for the Boohoo share price. Although currently trading for 105p, I won’t be looking to buy Boohoo shares any time soon.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS and boohoo 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.

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Whether 2022 is to be great or problematic for markets is, unfortunately, something we can’t know in advance. With this in mind, I think it’s worth drawing on the wisdom of the best investors around — Warren Buffett — to prepare myself. Here are five tips I’ll be keeping in mind in 2022.

Don’t hoard cash

1. “The worst investment you can have is cash. Cash is going to become worth less over time”

Having cash is never a bad thing per se. It’s important to have something set aside for life’s little emergencies. A few months’ living expenses tends to be the general consensus.

Beyond this, I’m in total agreement with Buffett. Cash erodes in value the longer I hold it. And with inflation in the UK now at its highest level for 10 years (and potentially rising higher in 2022), this tip is about as pertinent as you can get. 

Thanks to dividends and capital growth, I think the best chance of outpacing rising prices is the stock market. Consequently, this is where I intend to divert any savings in 2022. 

Have patience

2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

Trying to know where the share price of a particular company will go next is fraught with difficulty. This is partly why the vast majority of day traders lose money. There’s simply too much noise in the system for people to make great calls, at least consistently.

Buffett is as far removed from a trader as you can get. Knowing that profits lie in being patient, he buys stocks with the intention of holding them for many years. I’ll try to do the same in 2022. On the flip side, the only way I’ll be selling anything is if there’s been a clear shift in the investment case.

Control your emotions

3. “Be fearful when others are greedy. Be greedy when others are fearful”

All investors are potential slaves to fear and greed. The trick, according to Buffett, is knowing how to use them to your advantage. In simple terms, he thinks those wanting to beat the market should do what the majority can’t. Load up when the sky is falling in. Be less enthusiastic when all’s well.

With regard to 2022, a swift reversal in Covid-19 infections will surely bring out the buyers. Higher hospital admissions or a lockdown may do the opposite. I’m planning for both eventualities. 

Buy quality

4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

In my formative investing years, I lost count of the winners I missed out on by waiting for a great company’s price to hit ‘bargain’ levels. “Just a bit cheaper“, I’d whisper to the market, driven by the thought of buying a wonderful business for a wonderful price.

Buffett’s known for years that great companies rarely go on sale. And as the aftermath of the March 2020 market crash showed, recoveries can be swift when they do.

I have no doubt that at least a few brilliant companies will trade for reasonable — but not cheap — valuations in 2022. The best thing I can do is draw up a wishlist of what I’d like to buy, what’s appropriate to pay in advance and cross my fingers I’ll get my price.

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.

As stock markets worldwide plunge on pandemic concerns, I have been looking for FTSE 100 shares to buy for my portfolio to take advantage of the market environment. 

There are a handful of businesses I plan to add to my portfolio. I think these companies have tremendous prospects in 2022, but it does not look as if the market is aware of their potential. 

As such, here are my FTSE 100 shares to buy today for income and growth in 2022.

FTSE 100 shares to buy 

Last week, shares in the UK’s largest lenders jumped after the Bank of England increased interest rates. However, they have given back some gains in recent trading sessions. As such, I would take advantage of the current market environment to buy shares in NatWest and Lloyds. 

These are two of the largest banks in the UK and should be able to enhance profitability, thanks to rising interest rates and the improving outlook for the economy. 

Along the same lines, I would also acquire equipment rental company Ashtead. This operation has a fantastic business model. It is able to buy equipment at a reduced price and earn handsome returns by renting the tools out to users.

Profits have jumped over the past year as the construction sector has rebounded from the pandemic. I think this trend will continue, especially as the construction sector is booming.

The biggest challenges NatWest, Lloyds and Ashtead may face going forward are the prospects of further pandemic restrictions on the economy. This could impact economic growth and hurt their prospects over the next couple of years. I will be keeping an eye on these challenges as we advance. 

Expanding financial sector

As well as these companies, I would also take advantage of the recent market decline to buy shares in the London Stock Exchange Group and St. James’s Place.

Shares in the former have been under pressure, due to investor concerns about its most significant acquisition over the past year. The costs of this deal have increased beyond expectations, putting pressure on profits and profit margins. 

However, when the merger is complete, the FTSE 100 firm will offer consumers an unrivalled package of data and trading services. This long-term potential leads me to conclude that I would like to add this stock to my portfolio. 

Meanwhile, St. James’s could benefit from the rising demand for wealth management services across the UK. As the cost of maintaining a wealth management business grows, smaller establishments are pulling out. This company has the size and scale to navigate the regulatory challenges. This suggests it could move into the gaps left by competitors. 

While these companies have plenty of attractive qualities, they will undoubtedly face some significant challenges as we advance. These may include additional regulatory challenges, more competition and rising wages bill, which could hit profit margins. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking 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.

Royal Mail (LSE: RMG) shares had a smashing 2021. The stock has returned 54% over the past 12 months, buoyed by rising profits. Compared to a return of just 15% for the FTSE All-Share Index over the same period. Both of these figures include dividends paid to investors. 

The question is, was this performance just a one-off, or will the stock continue to beat the market in 2022?

The outlook for Royal Mail shares

Of course, it is impossible to predict how a stock will perform over the next 12 months with a high level of accuracy. But I can estimate a stock’s potential by looking at growth estimates.

In theory, a share price should match the underlying fundamental performance of the business. Therefore, if profits continue to grow next year, Royal Mail shares should follow suit. There is no guarantee this will occur. 

Looking out over the next year, City analysts expect the group to report earnings growth of around 8% for 2022. That is not particularly exciting. However, the company’s valuation does leave a lot of room for expansion. 

The shares are currently selling at a forward price-to-earnings (P/E) multiple of 8. The market average is around 14. So it does look to me as if there is room for the group’s valuation to expand in the year ahead. Analysts have also pencilled in a dividend yield of 4.7%. 

The company’s growth and dividend figures suggest the stock could produce a return of around 10% next year. That is assuming the valuation remains the same. Returns could be significantly higher if the valuation increases to around the market average. 

Still, this does not guarantee the company will outperform the rest of the market. These figures only suggest Royal Mail shares will produce a positive return next year. 

Growth headwinds 

The company could face multiple challenges next year, which will hold back growth. These include wage inflation and increased competition from smaller peers, who can pick and choose their markets. This could rob the enterprise of valuable income in some of its most profitable areas. 

The corporation has been trying to overcome these challenges by investing more in technology. The strategy seems to be yielding results, although additional capital spending will have an impact on profit growth. The greater the competition, the more the business will have to spend to stay ahead, and the bigger the impact this will have on its bottom line. 

These are the challenges I will be keeping in mind for the year ahead. Nevertheless, despite the above headwinds, I think the outlook for Royal Mail shares in 2022 is encouraging. And I think its valuation does not give the company enough credit for its potential. 

As such, I would be happy to add the stock to my portfolio today as an undervalued income and growth investment. 

Rupert Hargreaves 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.