A wealthy businessperson and I have something in common… unfortunately, it's not how much money we have. Instead, it's our eagerness to buy a particular ASX-listed stock after it plunged 16% in a single day last week.
See, reporting season can be a wildly volatile time for shares. Emotions run high as investors get their first peep into the business in months. If anything fails to meet preconceived estimates, the sentiment can quickly swing into panic.
For anyone who's been in the game long enough, you'll know that sometimes this behaviour can be rather irrational. It makes hardly any sense, to me at least, for a company's share price to be set ablaze when it misses an arbitrary target if most aspects of the business continue to head in the right direction.
However, I welcome absurdity, and it looks like a person worth $123 million does, too. It gives us the chance to buy quality companies at lower prices. Which is exactly what I believe the two of us were able to do on Monday.
Expectations and disappointment
On Friday, the Jumbo Interactive Ltd (ASX: JIN) share price tumbled 16.2% as the company unveiled its FY24 full-year results.
Oh, it was a downright shocker of a result… I mean, revenue was only up 34% from the prior year. Can you believe it? And don't get me started on the underlying net profit after tax (NPAT) of $46.4 million… up a pitiful 32%. But the dividends, oh, the dividends — 27% more than what Jumbo paid per share in FY23.
I hope you can detect the satire in my writing there. In all seriousness, I thought it was a phenomenal result — one I never would have guessed would erase nearly a sixth of the company's market capitalisation from this ASX stock.
Some of the concern is rumoured to be Jumbo's forecast FY25 underlying EBITDA margin range of 46% and 48%. Specifically, it suggests a decline from FY24's 48.1% EBITDA margin. Layer this with the expectation of a 'return to the historical number of large jackpots' and 'modest' growth, and we have a recipe for selling.
Scooping up this sold-off ASX stock
Ultimately, I think some softening in FY25 is not the end of the world for Jumbo Interactive.
If you've read other company reports and business news headlines, you'd know many are discussing the slowdown in spending. This situation is being felt broadly across the Australian economy as interest rates bite down on discretionary spending, as intended by the Reserve Bank of Australia.
In my opinion, nothing has fundamentally changed in the investment case for Jumbo Interactive. That's why I grabbed another parcel of shares in the company on Monday.
I can't speak for Jumbo Interactive founder and CEO Mike Veverka, but he clearly had reasons to invest on Monday and Tuesday as well. According to a notice, the wealthy Jumbo shareholder purchased another 10,400 shares worth nearly $100,000 earlier this week.
As shown above, the ASX stock is down 24% over the past six months. Shares currently trade at a price-to-earnings (P/E) ratio of 20 times earnings.
