GBST upgraded to Buy (again)

It's not for nothing that we've given GBST Holdings a share price risk rating of High. After we made it the Buy recommendation for April, GBST quickly added 10% and earned itself a downgrade to Hold. Now it's dropped 7% in a week, apparently due to a downgrade from Morgans CIMB.

Morgans says it 'retains a positive view' of GBST, but has lowered its rating from Add to Reduce, citing valuation concerns. These are based on the fact the stock trades on an '18% premium to global peers on an EV/EBITDA basis and a 16% premium on a PER basis'.

We love it when brokers talk about stocks being expensive by reference to some peer group, because the truth is that stocks are all different. Small differences in growth rates can make for large differences in valuation, so it makes no sense to lump lots of different stocks into some 'peer group'.

Morgans' forecasts for the company also look very conservative, with revenues in the UK wealth management business tipped to grow at 5% a year between 2015 and 2017 – below what we'd consider likely and far below what we'd consider possible. It's good to take a conservative view, but if you don't consider the possibility of spectacular success with stocks like this, then they're always likely to look expensive (relative to their peers or otherwise).

There has also been some positive news since we downgraded to Hold, with the company announcing that UK retirement income specialist Just Retirement has selected its Composer solution to support a platform offering the new flexible retirement options allowed by the Retail Distribution Review. Just Retirement listed on the London Stock Exchange in 2013 and made revenues of £1.7bn in 2014.

With the price down 7% since we downgraded to Hold, the stock is now offering a second bite. Keep in mind that this is a volatile stock, though, so it might pay to stagger your purchases. BUY.

Disclosure: Having missed it the first time around, the author may buy shares in GBST once members have had an opportunity to do so.