On the other hand, bulls can argue that the market overreacted in early Feburary when the government announced the lawsuit. The company’s stock price fell almost 30% in two trading sessions, creating buying opportunities. As it turns out, the stock has recovered some ground, but is still far from its January levels. The fact of the matter is that the company is profitable, and earnings are expected to increase over the next several years. Furthermore, the company has over $1 billion in cash (which could be used to pay a settlement comfortably), and it pays a decent dividend. While the market has had excellent returns YTD, The McGraw-Hill Companies, Inc. (NYSE:MHP) has dropped almost 13%, and, if the case is won or settled, or the story starts to be forgotten, investors looking for bargains in this bull market could start driving McGraw-Hill’s stock price up again.
Had the government not announced a lawsuit, The McGraw-Hill Companies, Inc. (NYSE:MHP)’s stock price would probably be inching closer to $60, following the bullish market trends. Instead, it is now trading at around $47, below its average target price of $58, and closer to its 52-wk low than its 52-wk high. The stock looks more attractive than its competitors, has bullish analysts, and should have a stable earnings outlook. Obviously, if the company is forced to pay the $5 billion fine, the earnings estimates, the forward P/E, the PEG, and all the other ratios based on them are meaningless, and the company could indeed be in serious trouble. At any rate, I believe that it is unlikely that the company will have to pay such a severe penalty, or even that the government can win this lawsuit. As a result, there could be some buying opportunities at current price levels. As with any contrarian play, however, investors should be cautious, and should understand the risks involved.
The article After the Plunge, Is it Time to Buy This Stock? originally appeared on Fool.com and is written by Alex Bastardas.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.