Capita shares are up 30% in 1 month. Should I buy?

first_img 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. Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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. Simply click below to discover how you can take advantage of this. Capita shares are up 30% in 1 month. Should I buy? Image source: Getty Images. Enter Your Email Address Capita (LSE: CPI) shares have recently caught my eye. The FTSE 250 company is currently very cheap, with a P/E ratio of 4x, even after a 30% rise in just a month. But while Capita shares maybe a bargain, they come with considerable risk.Prior to the pandemic, the share price was hurt on the back of its rival Carillion’s collapse in 2018. The outsourcing sector has suffered since then and the Capita share price has struggled with it. A string of profit warnings have added to its woes and despite its recent rise, the share price is down 63% over 12 months.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…New CEO, Jonathan Lewis joined Capita in 2017 to turn around the company’s fortunes. But do I feel it has turned a corner under his leadership? Not yet! What does Capita do?I must admit that Capita can be a hard business to understand. I think the problem is that the company has its finger in so many pies that it’s really difficult to know what’s going on. In a nutshell, Capita is a consulting, digital services and software business. At least this is how it describes itself on its website. It’s also an outsourcing firm that operates both in the public and private sectors. It has six divisions and revenue from each business is relatively evenly distributed. While the business is somewhat complex to understand, at least it has diversified its revenue, although some might say it’s too diversified.StrategyWhen Lewis took over as CEO he concluded that Capita worked across too many markets and services. I agree with this point. In fact, I think it’s very difficult to maintain a competitive advantage in every business.Lewis also pointed out that Capita had relied too much on acquisitions to drive growth and had also seen weakness in the quality of new contracts. His strategy is very simple. It’s to simplify the portfolio of businesses, focus on higher-quality contracts and strengthen the balance sheet. But I think this is easier said than done.This means that there have been disposals of businesses and the proceeds have been used to strengthen Capita’s financial position. The funds will be used to reduce the large net debt position and pay down pension liabilities. I think it’s encouraging to see Capita reduce its leverage, but this will take some time to yield results.Recent eventsCapita has struggled during the pandemic. Revenue was not only hit by Covid-19 but also by 2019 contract losses. Yet the shares have risen on the recent flurry of positive news. It has signed a contract to deliver training services to the Royal Navy. Last month, Capita completed the sale of its Education Software Solutions business.It also recently confirmed media speculation that it’s looking to sell its AXELOS business. This is a joint venture with the UK Cabinet Office where Capita owns 51%.What next for Capita sharesThere are a few bright spots for the company. The disposing of assets means that the debt pile can be reduced faster. Capita has also focused on securing higher- contracts as evidenced recently with the Royal Navy. This could mean a brighter future for the firm. Yet I think it’s still early days and there’s no guarantee that the turnaround will be successful. For now, I’ll sit on the fence and monitor the shares. Our 6 ‘Best Buys Now’ Sharescenter_img Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! 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