Plus500 (LSE:PLUS) experienced a remarkable increase in its share price during 2018 due to profit surges and an increase in market share. However, the recent warning about profits caused a 32% decline in the company’s value. So, was the sell-off an overreaction or are there still further headwinds for the Plus500 stock?
ESMA (European Securities and Markets Authority)
The European regulatory changes imposed by ESMA had an immediate impact on the share prices of IG Group and CMC Markets. Capped leverage, negative balance protection, and restricted products were all supposed to put pressure on broker profits. However, while the value of rivals faltered, Plus500 continued to thrive.
With a peak of over 2000p, the share price was buoyed by consistent profit growth and an attractive dividend offer. However, those who shorted the stock held their ground.
The short sellers were ultimately rewarded when Plus500 warned in the autumn of 2018 that its 2019 profits would be below expectations. The share price dropped to an 11-month low, testing support at around 1200p.
Analysts Remain Optimistic
Analysts quickly revised their price targets down from mid-2000 forecasts to around 1700 to 1800. However, that still represents an upside from the current levels.
Many believe that Plus500 has weathered the ESMA storm and has figures that prove it is more resilient than its rivals.
The ESMA rules only affect retail trader accounts. Professional accounts are exempt, as the regulator feels that more experienced traders should be able to opt-out of the protection and manage their own risk.