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Sometimes, the best stocks to buy are among those that are performing the worst. That’s because negative catalysts can trigger a lot of rapid selling from investors.
But this reaction can also be overblown. And the result is a buying opportunity that smarter investors can exploit.
We’ve already seen the power of a comeback story with Rolls-Royce. The engineering giant has surged more than 1,700% in the last five years after being one of the worst-performing UK stocks in 2020.
Skip ahead to 2025, and Mobico Group (LSE:MCG) now finds itself on the list of worst performers, falling by 60% over the last 12 months. What happened? And is this secretly the start of a rebound?
Digging deeper
As a quick crash course, Mobico is the recently rebranded name of National Express – a public transport operator with a fleet of over 13,500 vehicles. While the business certainly has the advantage of scale on its side, it’s nonetheless encountered a series of challenges over the last year, which has cause the stock to tumble.
High levels of competition within North America, alongside operational issues and non-cash impairment charges, have resulted in earnings taking a substantial beating. The situation‘s only been made worse by the group’s high level of debt and leverage, resulting in a growing level of market scepticism. And that’s even after management maintained its full-year profit guidance despite all the difficulties.
Combined, these factors are responsible for the downfall of Mobico’s market-cap. But with the damage now done, could investors be looking at an entry point for a potential recovery investment?
Bull versus bear
To management’s credit, the firm’s been successful in securing new contracts that support future revenue growth, particularly in its core UK and Spanish regions. At the same time, the group’s sold off its struggling North American school bus enterprise, improving liquidity and providing some much-needed flexibility to deleverage the balance sheet.
Pairing all this with a continued push for better operational efficiency, expansion opportunities with German railways, and the positive secular demand for sustainable public transport, there is a valid bull case to be made. Even more so, considering the shares now trade at a seemingly dirt cheap forward price-to-earnings ratio of 5.1.
Having said that, it’s also important to recognise the risks that still surround this business. The threat of margin compression from competitive forces still remains a significant obstacle. And while management’s making strides to lower debt levels, such moves also limit the capacity for internal growth investments, potentially enabling better-funded rivals to outmanoeuvre Mobico while it tries to deliver on its turnaround.
The bottom line
All things considered, the Mobico share price appears to have the potential to deliver an impressive recovery. However, that’s far from guaranteed. Management’s still in the early stages of mending the cracks, and with competitors storming ahead, there remains the possibility of Mobico being left behind.
With that in mind, I’m not tempted to buy any shares today. Instead, I’m looking elsewhere in my hunt for the best stocks to buy in 2025.
