One of the worst-performing stocks in the FTSE 250 last month was abrdn (LSE:ABDN). Despite the stock being up 17% over the past year, the abrdn share price dropped by 29% during August. There were several factors that led to this move that investors will want to think about before deciding whether to pounce on a potentially undervalued share.
Results weren’t great
Near the start of the month the focus was on the half-year results. Even though there were some positive takeaways, the stock lost ground following the release of the news.
Why was this, given that operating revenue grew by 4% versus the same period last year and adjusted operating profit rose by 10%?
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Well, the business still lost money. The loss before tax of £169m wasn’t a good sign, even if it was smaller than the loss in H1 2022. And the kick in the stomach came from the assets under management (AUM) shrinking. They dropped from £500bn to £495.7bn.
AUM is a key metric for the company. The more assets and money it has from clients, the higher the fees earned. So it’s not a surprise that with shrinking AUM, the business can’t post a profit.
Naturally, these thoughts weighed on the minds of investors too, hence the share price drop.
Demoted to the FTSE 250
Another factor that caused the stock to fall was the quarterly reshuffle. This happens when based on the market cap, stocks get promoted to the FTSE 100 and dropped to the FTSE 250.
Some might wonder why this would cause the share price to move lower. There are a coupe of points to consider here. Firstly, FTSE 100 tracker funds no longer need to own the company. So they would sell abrdn and buy the promoted firms instead.
Second, there’s a negative connotation with getting demoted. Clearly, the abrdn market cap has been dropping, hence the reason for the shuffle. So the falling share price brings with it negative sentiment, which is then compounded because the drop means the market cap isn’t large enough to stay in the FTSE 100.
It’s a negative spiral and one that hurts the stock in the immediate aftermath.
Thoughts on buying
The drop does put the stock at its lowest level since last November. In terms of buying it as a growth stock for share price appreciation, I think there are better options in the market right now.
However, given that the dividends have been constant over the past couple of years, the dividend yield has been pushed up to 8.66%. If we assume that the dividend per share doesn’t get cut in the future, then this could be a smart buy for income investors right now.
