Weir Group share price explodes! Here’s what I’m doing about it

first_img Our 6 ‘Best Buys Now’ Shares Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. 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. The Weir Group (LSE: WEIR) share price jumped almost 16% yesterday. Apparently, the FTSE 250 engineering services firm is to sell its oil and gas business to Caterpillar, the US heavy equipment manufacturer, for £313m. This sale will, of course, depend upon shareholders approval. But I think this is likely to be given. After all, shareholders have known for some time that this spin-off was in the pipeline. Weir management is keen to streamline operations and focus on its core business of supporting global mining operations.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…So, with all this in mind, is now a good time to buy Weir’s stock? Well, it all depends…Weir Group share price forecastHistorically, divestitures are generally good for investors. The share prices of parent companies often perform well and most of my own research suggests that most sell-offs increase shareholder wealth. Consequently, an immediate rise in Weir’s stock price upon the sale announcement was always likely.However, some academic studies have also shown that’s it’s not uncommon for divesting companies to undervalue the asset up for sale. But in this case, Weir’s oil and gas division provided the firm with a £372m pre-tax loss in 2019, on top of a £546m impairment charge. And with low oil prices denting demand for pumping equipment, it’s likely that the financial profile of the division no longer complements its mining business. Moreover, this situation would likely increase costs, damaging profits further.I’m not convinced the energy equipment maker is in a position to wait for a higher bidder. But, I’m expecting a volatile share price as investors weigh up whether £313m is a good price for the oil and gas division.        Other factors to considerAt the current price around 1,483p, Weir Group is selling without a valid price-to-earnings ratio. This is because its 2019 earnings, and indeed its five-year average earnings figure, is negative. In other words, over the last five years, Weir Group has not made an overall profit. As an investor, this is a big red flag for me and makes its current selling price very expensive.However, a major reason earnings per share were negative in 2019 was due to a write-down of oil and gas assets. And in the first half of this year, its oil and gas division saw a 48% drop in revenue and an operating loss of £4.4m.From this perspective, the sale of this division is good news. Weir will use the cash to pay off debt and enable the group to move forward as a “focused, premium mining technology business“. Management is relying on growing demand in harvesting essential metals sustainably and efficiently. As its core business, this bodes well for the future and I suspect this optimism is what caused the explosion in Weir’s share price yesterday.However, as I’m not already an investor in the firm, I think I’ve missed the short-term opportunity for any capital gains relating to the sale of its oil and gas division. Indeed, Weir’s stock is now too expensive for me.Yet once the sale has gone through, Weir Group is well-positioned for the future and I’ll consider it again when the price settles down. But for now, I think there are other investments out there that may provide better returns.    I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Simply click below to discover how you can take advantage of this. Enter Your Email Addresscenter_img “This Stock Could Be Like Buying Amazon in 1997” Weir Group share price explodes! Here’s what I’m doing about it Image source: Getty Images. See all posts by Rachael FitzGerald-Finch I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Rachael FitzGerald-Finch | Tuesday, 6th October, 2020 | More on: WEIR last_img read more