For some braver share pickers, Petra Diamonds could be seen as an attractive punt at current prices. Boasting a forward P/E ratio of just 3.9 times, it could be considered a snip in relation to its predicted near-term earnings trajectory, as does a corresponding PEG reading of 0.1.

But what on Earth could prompt anyone to buy into the business right now? The promise of rebounding diamond prices? Of course.

Near-term worries rise

But Petra has found itself in the doghouse with market makers, in part because of wretched diamond demand in recent years. Soft stones demand in China and high inventories of polished items are battering the sector and, according to the firm’s most recent financials, revenues sank a lacklustre 7% in the three months to March, to $135.2m. That’s a reversal driven by a 6% slump in volumes to 1.06m carats.

Have conditions picked up since then? Not if trading at Anglo American’s De Beers unit is anything to go by. The firm advised this week sales in its fifth cycle had plummeted to $390m, from $591m a year earlier.

It’s unlikely prices will improve in the near term either, given the impact US-Chinese trade wars have had on the already-slowing economy in the Far East — battles which threaten to persist despite hopes of a breakthrough at this weekend’s G20 summit. And let’s not forget the prospect of a downswing in the solid North American market amid signs of growing economic stress there.

So what’s the score?

On the other hand, Petra and its peers could be considered attractive investments for patient investors amid hopes of recovering stones prices from the start of the next decade.  

Diamond market expert Paul Zimnisky recently told UBS that natural diamond production will slip 12% in the five years to 2022 as existing mine supply is depleted and old assets are shuttered, factors that could give prices a much-needed leg-up. He also noted diamond demand is growing while voicing doubts over the impact of the man-made segment on natural product demand too. In particular, he downplays the possible disruption that synthetic stones will cause in the luxury jewellery market.

So what should investors do? Take a ride with Petra in the hope of improving supply/demand values in the next few years? Certainly not, I would argue.

Whether or not an improvement in the diamond market’s fundamentals eventually materialises, the risks to the company remain formidable.

Reasons to be fearful? The prospect of fresh currency headwinds should the slowing global economy hit the South African Rand. More mining and shipment problems in South Africa and Tanzania. And, of course, an elevated net debt pile which still sat north of $550m as of March.

It’s quite likely that fresh financials slated for 22 July will release some fresh horrors, given recent newsflow. Thus the chances of additional share prices drops are high. For this reason, I think Petra remains best avoided and quite possibly remain so for the considerable future.

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Royston Wild 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.

Stock pickers aren’t interested in its dirt-cheap valuation nor its gigantic dividend yields that sit in excess of 6. No, concerns over Brexit and how this will smack the FTSE 100 broadcaster’s profits have swaggered into town and darkened its appeal once more.

Advertising revenues have been on the mend at ITV, but recent research suggests that things could turn pear-shaped again in the coming months, at least if the government follows through on a botched withdrawal from the European Union.

Enders Analysis has predicted that the onset of a no-deal Brexit would cause the ad spend in the UK to move into recession in 2019, a scenario that would cause expenditure across the industry to fall by around 3%. A so-called orderly withdrawal could see advertising budgets rise 2.7%, the researcher said, but the growth rate surrounding this base case would still pale from the 4.7% rise posted in 2018.

Losing its shine

Reflecting the toughness in the ad market over the past 12 months and the possibility of further stress in 2019 and beyond, ITV’s share price has sunk 22% since the same point of last year. This, however, looks like a terrific result when compared with Petra Diamonds (LSE: PDL) whose own market value has contracted a whopping 62% over the period.

The digger of precious stones in Africa hasn’t had the best of it over the past year because of export bans in Tanzania, swelling debt levels, rights issues, production setbacks and impairments on its Koffiefontein mine in South Africa, problems that have forced it into a number of asset disposals too.

Quite a 2018 then. And there remains plenty to be worried about. Sure, Petra’s latest trading statement this week showed that it’s got to grips with those aforementioned operational problems and that diamond production jumped 9.5% between July and December to 3m carats. But I remain extremely worried by the size of the firm’s debt mountain, which swelled to $559.3m as of December from $520.7m six months earlier on the back of swelling costs.

I’d rather buy ITV

Now Petra might be cheap, as reflected by its forward P/E ratio of just 9.8x, but I’m not surprised. The mining giant still has a variety of issues to solve, some of which are significant enough to encourage me not to invest right now.

Yet ITV is quite another story. It also deals on a P/E ratio below the bargain-basement level 10x, indicating the tough conditions in the ad market. But I believe that this makes it a terrific buy given the brilliant sales potential of its ITV Studios division at home and abroad, as well as the way it is diversifying away from television and into other forms of media.

Throw that aforementioned prospective dividend yield of 6.2% into the bargain and I reckon the Footsie firm is a top long-term stock to load up on today.

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With the company expected to return to profit growth in 2019, its valuation could become increasingly attractive. Alongside a stock which released a production update on Monday, it could offer FTSE 100-beating performance in 2019.

Low valuation

The stock in question is Petra Diamonds (LSE: PDL). Its production in the six months to 31 December was relatively solid, with it reaching consistent levels. During the period, its production increased by 10%, and it is on track to deliver full year production of between 3.8 and 4 Mcts. Rising production led to an increase in revenue of 8%, with it reaching $201.1m.

Rough diamond prices reduced by 4% on a like-for-like basis compared to the second half of the previous year. This was due to seasonal weakness. The product mix during the period, especially at the company’s Cullinan mine, yielded prices which were at the lower end of historical ranges.

Looking ahead, Petra Diamonds is expected to report a doubling of its earnings in the current year. This puts it on a price-to-earnings growth (PEG) ratio of 0.1, which suggests that it offers a wide margin of safety. While its financial performance is likely to be relatively volatile, the company’s low valuation and growth potential could make it of interest to less risk-averse investors.

Improving outlook

While the performance of the AstraZeneca share price has disappointed of late, the company’s financial prospects are expected to improve. It is forecast to record a rise in earnings of 13% this year, which may lead to improving investor sentiment.

The company may also become more popular among investors as a result of the nature of its business. As a pharmaceutical stock, its financial performance may be less closely correlated to the wider economy than is the case for many of its FTSE 100 peers. Given that investors remain cautious about the outlook for the world economy, with risks such as a slowing China and rising US interest rates ahead, stocks with defensive characteristics could become increasingly popular.

Additionally, with AstraZeneca having long-term growth potential from investment in its pipeline, it may become an increasingly in-demand share. Its PEG ratio of 1.7 may not be among the lowest in the FTSE 100, but from a value perspective it seems to be fairly priced. Having outperformed the FTSE 100 by 36% in the last five years during an era when its earnings have consistently declined, a growing bottom line could mean that in 2019 and over the coming years it is able to beat the index by an even larger margin. As such, now could be the perfect time to buy it.

The post Why I think the AstraZeneca share price could crush the FTSE 100 this year appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. 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.

As such, investing in a share such as online fashion retailer Boohoo (LSE: BOO) may not seem like a shrewd move. After all, the sector is experiencing fundamental changes, while a weak economy could weigh on the industry’s performance.

However, alongside another stock which released an update on Monday, Boohoo could be worth buying for the long term. Both shares appear to have brighter futures and lower valuations than many investors may realise.

Margin of safety

The company in question is Petra Diamonds (LSE: PDL). It released a first quarter trading update which showed a rise in production of 21%. This boosted revenue by 22% to $80.2m even though diamond prices were down by 5% on a like-for-like (LFL) basis. Encouragingly, the company remains on track to deliver positive free cash flow in the 2019 financial year. And while its net debt increased to $538.9m from $520.7m as at the end of June, this was in line with expectations.

Looking ahead, the world economy continues to experience an uncertain future. The threat of a higher US interest rate and the potential for a full-scale trade war could hold back investor sentiment towards the resources sector.

Petra Diamonds, though, is forecast to post a rise in earnings of over 100% in the current year, which puts its shares on a forward price-to-earnings (P/E) ratio of around 6. This suggests that they offer a wide margin of safety. Although they may prove to be volatile, they could offer high returns in the coming years.

Bright future

As mentioned, the UK retail sector also faces a difficult future. However, online operators such as Boohoo could enjoy a tailwind from the continued transition of shoppers towards online. This trend is set to continue in future years, and may mean that digital opportunities for growth remain high.

Looking ahead, Boohoo is set to undergo significant change. It is due to replace its co-CEOs with an executive from Primark, and this could provide its strategy with a boost over the medium term. Given that the company is forecast to post earnings growth of 18% in the current year, followed by 24% growth next year, its business model appears to be performing well even in a challenging UK economy.

Of course, the company has significant international exposure. This is likely to be a key focus of future investment, and could help to diversify its business away from the UK at a time when its outlook is uncertain ahead of Brexit. And since the stock trades on a price-to-earnings growth (PEG) ratio of around 1.6, it seems to offer fair value for money given its long-term growth prospects. As such, now could be the right time to buy it, even though a number of its sector peers could struggle to perform well in a difficult UK retail environment.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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 firm’s Sukari gold mine reached full production in 2014. Last year, the company reported gold reserves of 8m ounces at Sukari. At the current production rate of about 500,000 ounces each year, that could support 20 years’ production. Even taking a more cautious view, 15 years seems a safe estimate to me.

I think it’s fair to view this company as a production business which will continue to return a substantial share of its profits to shareholders.

Out of favour – the right time to buy?

Gold is out of favour at the moment. The price of the yellow metal has fallen by 11% from $1,350/oz to $1,195/oz so far this year. Gold miners’ share prices have dipped too.

Centamin’s share price has fallen further than most. The stock is down by nearly 40% so far this year, mainly because management cut its guidance for 2018 production in May. I share my colleague Graham Chester’s view that this is a short-term blip.

I’m more interested to note that the shares now trade on a trailing price/free cash flow ratio of about six. That’s very cheap, in my view, especially when it’s accompanied by a net cash balance of $282m. This cash pile covers roughly 20% of the group’s market cap, so it provides good support for the dividend.

Although the company is still involved in two ongoing court cases in Egypt, my view is that these are now unlikely to cause major problems. Indeed, I think the shares are priced to buy, on a forecast P/E of 13.3 and with a prospective yield of 5.1%.

A turnaround opportunity?

Things haven’t gone so well for shareholders in African miner Petra Diamonds Limited (LSE: PDL).

Earlier this year, this £317m firm was forced to raise $178m (£136m) from shareholders in a rights issue to help reduce its debts to “a more sustainable level.” Today’s full-year results suggest to me that the outlook remains uncertain.

The good news was that group revenue rose by 25% to $495m last year. Management’s preferred measure of profit, adjusted earnings before interest, tax, depreciation and amortisation (EBTIDA) rose by 37% to $195. This was supported by adjusted operating cash flow of $157m, up by 7% from $147m last year. Meanwhile, last year’s rights issue helped reduce net debt from $555m to $521m.

The bad news was that a range of exceptional costs and political problems pushed the group to an overall loss after tax of $203m. Free cash flow was also negative.

Although costs, such as mine closure charges, were clearly one-offs, the company still has political problems in Tanzania. The authorities there have seized an export shipment and are in dispute with the firm over VAT charges.

Chief executive Johan Dippenaar says that the company remains on track to generate free cash flow and reduce debt to sustainable levels by the end of June 2020.

However, Dippenaar has announced plans to leave the firm today. My view is that there are still a number of risks here that most investors will struggle to understand. For that reason, I plan to continue avoiding this stock, despite the firm’s modest 2019 forecast P/E of 6.3.

The post One FTSE 250 5% dividend stock I’d buy and hold for the next 15 years appeared first on The Twelfth Magpie.

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Roland Head 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.

My second company has a single-digit price/earnings ratio, despite having delivered a 560% share price rise since April 2016.

Trouble down the pit

Not so long ago, mining firm Petra Diamonds Limited (LSE: PDL) was a FTSE 250 stock. The group, which owns the famous Cullinan mine in South Africa and also operates in Tanzania, has been trying to expand over the last few years. But the company has faced a number of headwinds and has now cut its guidance for the year ahead.

In a trading update today, Petra said that production had been suspended in a section of its Finsch mine, due to unstable rock conditions. As a result, the firm has cut its 2019 production guidance from 5.0m-5.3m carats to 4.6m-4.8m carats.

The group’s 2018 revenue is expected to be broadly in line with expectations, at about $577m. But costs seem likely to be higher than expected, due to adverse exchange rate movements and lower-than-planned mine production. I believe full-year profits may now be lower than current forecasts suggest.

Bargain buy or value trap

In its half-year results in February, Petra Diamonds reported a tangible net asset value of about 51p per share. The stock was trading at about 48p at the time of writing, so the shares look cheap relative to the value of the firm’s assets.

They also look cheap relative to 2019 forecast earnings, which suggest a forward price/earnings ratio of just 5.2.

My concern is that we could still see more bad news. Net debt remains high at $436m, despite Petra raising $178m in a rights issue earlier this year. And the company is still locked in a costly tax dispute with the government in Tanzania.

In my view, these risks make the stock a potential value trap, and one to avoid.

Chairman says “stay tuned”

Shares of China-focused zinc and gold miner Griffin Mining (LSE: GFM) have risen from a low of 21p in February 2016 to more than 140p at the time of writing. Shareholders who’ve been on board for this ride have seen gains of about 560% over this period, turning a £5k investment into a £32.5k position.

Supporters of the stock say that it’s still cheap, thanks to a debt-free balance sheet and the long-awaited award of a mining licence to expand into a new zone of its Caijiaying Zinc-Gold Mine.

Expectations are high among shareholders, but of course it will take a period of time and some expense to develop this section of the mine and bring it into production.

A good China stock?

AIM-listed companies operating in China have had a bad reputation in recent years. But Griffin has been listed in London since 1997 and appears to be profitable and well run.

One risk is that the firm’s operations are centred on just one mine. So if political or operational problems stopped mining, revenue could crumble.

However, Griffin shares currently look cheap on a 2018 forecast P/E of 7.7. There’s also a forecast maiden dividend yield of 0.7%. This yield is expected to rise to 2.4% in 2019, giving long-term shareholders the prospect of a growing income.

This stock isn’t without risk, but it may be worth a closer look if you specialise in mining shares.

The post This small-cap has turned £5,000 into £32,500. Time to buy? appeared first on The Twelfth Magpie.

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Roland Head 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.

However, the future prospects of the industry appear to be improving. While commodity prices could remain volatile, investor sentiment towards the sector may pick up. As such, now could be the right time to buy these two mining shares.

Impressive outlook

Reporting on Monday was Petra Diamonds (LSE: PDL). Its performance in the first half of the year was generally in line with expectations. Its adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) and operating performance were in line with consensus expectations, but its overall performance was negatively impacted by strike action at certain South African operations. In addition, the company was unable to sell the blocked Williamson parcel, while the strengthening of the South African rand versus the US dollar also hurt its performance.

Looking ahead, Petra Diamonds has an upbeat financial outlook. It is due to report a rise in its bottom line of 110% in the current year, followed by further growth of 72% next year. Both of these figures are exceptionally high and suggest that three years of falling profitability may be quickly forgotten.

At the present time though, investors remain cautious about the company’s prospects. It trades on a forward price-to-earnings (P/E) ratio of just 5.6 using next year’s earnings forecast. This indicates that there could be significant upside potential on offer. Certainly, risks remain high and commodity price falls could cause guidance to be downgraded. But with a wide margin of safety, now could be the perfect time to buy Petra Diamonds.

Improving performance

Also offering upside potential in the mining sector is Rio Tinto (LSE: RIO). The iron ore specialist has enjoyed a strong period in recent months, with the iron ore price having delivered improved performance after a challenging period for the industry. Increasing demand from China after a change in investment policy has meant that the outlook for iron ore is relatively upbeat, although it remains a difficult market to predict.

However, with Rio Tinto trading on a P/E of around 12.4, it appears to offer good value for money. The company also offers an upbeat income outlook. It has a dividend yield of around 5% at the present time. With shareholder payouts being covered around 1.6 times by profit, they appear to be highly sustainable.

With Rio Tinto having kept its balance sheet in relatively good shape in recent years, it appears to offer a lower risk profile than many of its industry peers. This could mean that it is able to command a higher valuation on a relative basis over the long run. As such, it appears to be a worthwhile investment right now.

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Peter Stephens owns shares in Rio Tinto. 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.

And Petra was recently down an extra 18% on Monday after it downscaled its profits estimates for the full year.

The stones specialist advised that “due to due to the recent strengthening of the rand and its potential impact on Petra’s cost base in US dollar terms,” EBITDA for the year concluding June would likely fall 10%-15% short of market consensus.

But this was not the only scare story to come out today. The Jersey-based firm cautioned that full-year production will fall short of prior estimates — this is now forecast at 4.6m-4.7m carats versus 4.8m-5m carats previously. Petra said that this is because of lower grades at its Cullinan mine, combined with the impact of industrial action in South Africa during the first quarter.

Jersey gore

As I said, this is not the first time it has spooked investors in recent times, and not just because of strikes in the turbulent mining territories of South Africa.

A disagreement with the Tanzanian government last year resulted in a crushing export ban, and prompted a warning in October that the company could breach its debt covenants. Petra advised today that this has banned a shipment from its Williamson mine and contributed to a 1% fall in revenues during July-December, to $225.2m. This parcel remains blocked for export, the company has said.

These operational problems and its colossal debt pile (net debt ballooned to $644.7m as of December from $613.8m three months earlier) are not the only troubling signs with the outlook for diamond prices less than reassuring too. Rough stone values dropped by 3.5% during the first half, although Petra noted that prices have improved in recent months.

Now City analysts had been expecting earnings to go gangbusters now and beyond, recent forecasts suggesting rises of 160% and 53% in fiscal 2018 and 2019 respectively. Today’s update will see brokers downscale their expectations, of course, making the company’s cheap forward P/E ratio of 7.1 times largely irrelevant.

Given the multitude of problems facing Petra, I would not touch the share with a bargepole right now.

Work it out

I would be much happier stashing the cash in The Gym Group (LSE: GYM) today, another share the Square Mile expects to report eye-watering earnings growth.

The fitness giant is expected to follow a predicted 34% earnings rise in 2017 with advances of 23% this year and 29% next year. And it is not difficult to see why as membership numbers soar (these leapt 35.5% last year to 607,000, due in no small part to its site opening scheme).

And thanks to its low-cost model, I expect the difficult economic environment in the UK to attract more and more people through its doors in the near term. And over a longer-term time horizon the London firm’s expansion programme should deliver strong and sustained profits rises (Berenberg sees scope for the company’s base to double to 250 sites eventually).

While the business carries a premium forward P/E multiple of 26.7 times, its corresponding PEG reading of just 1.2 suggests it is attractively priced considering current earnings estimates. In my opinion, The Gym Group is a growth star worthy of serious consideration today.  

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Royston Wild 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.

Investor confidence in the stock won’t be helped by news that today’s warning appears to be the result of accounting errors. These have now been reported to the group’s auditors and will delay the publication of full-year results — due in December — until February.

What’s gone wrong?

The firm says that staff have identified some revenue items “that it does not consider should be recognised in the FY2017 results”. Removing these items from the 2016/17 accounts is expected to reduce earnings before interest, tax, depreciation and amortisation (EBITDA) from £23m to £20m.

The company says that sorting out these issues has been “complicated” by the “sudden absence” due to illness of the group’s chief executive Andrew Riley.

No information has been provided about the nature of the accounting problems, but one possibility is that revenue from multi-year contracts has been recognised too early. This is an area that’s caused problems for other service companies in recent years.

Buy, sell or hold?

Today’s news is a reminder of the old stock market adage that profit warnings usually come in threes. We’ve now had two warnings from the firm, leaving a number of questions unanswered.

Using the information in today’s statement, I estimate that full-year adjusted earnings could be around 3.1p per share. That would put the stock on a forecast P/E of 13, at current levels.

In my view this is still too expensive. I plan to review this stock again when management provides a full set of accounts and updated guidance for 2018/19. In the meantime, I’d rate it as a sell.

A value trap?

Earlier this year, I was bullish about African miner Petra Diamonds (LSE: PDL). But the firm’s situation has worsened considerably since then. I now believe this stock is in danger of becoming a value trap.

Petra Diamonds has been spending heavily on expanding its Cullinan and Finsch mines. This work is now largely complete and both mines are ramping up production. The problem is that spending on Cullinan has left the company with raised debt levels, just as its operations are being disrupted elsewhere.

Double whammy

In South Africa, Petra has experienced disruption from strike action at a number of its mines. Meanwhile sales of diamonds from Tanzania have been disrupted by a government crackdown on exports. This has affected several London-listed miners.

As a result, the group reported net debt of $613.8m at the end of September. That’s nearly four times last year’s adjusted EBITDA of $157.2m and has left the group at risk of breaching some of its banking covenants.

Brighter outlook for 2018?

Problems in Tanzania are receding and performance is expected to improve in 2017/18. Debt levels may fall without the firm needing fresh funding.

But Petra has already warned that industrial unrest and “the uncertain outlook” for its Williamson mine in Tanzania could hit performance over the coming year.

The stock currently trades on a 2017/18 forecast P/E of 7.7. In my view this modest valuation is high enough, given the financial risks facing shareholders. If Petra’s debt problems persist and cash runs short, these shares could have further to fall.

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Roland Head 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.

The retailer advised today that revenues jumped 18% during the six months to September to £483.2m and, as a result, profit before tax and exceptional items boomed 64% to £10.5m.

The result prompted chief executive Mark Carpenter to comment: “Whilst market conditions are always subject to external changes, the supply of stock coming into the business remains good and management are comfortable with the Group’s trading performance so far in [the second half].”

The solid first-half performance prompted Carpenter to advise that the firm remains on track to hit its full-year targets.

Drive away

At the moment, the City doesn’t harbour any worries on Motorpoint’s earnings outlook in the near term and beyond. Indeed, current broker consensus suggests that a 29% profits advance is on the cards for the year to March 2018. What’s more, an extra 15% rise is forecast for fiscal 2019.

News that these forecasts translate through to exceptionally low paper valuations may draw plenty of share pickers in, too. On top of a forward P/E ratio of 10.9 times, a reading that falls below the widely-accepted value watermark of 15 times, the car dealer also sports a corresponding sub-1 PEG multiple of 0.4.

Still, recent data from the British car market suggests that these heady growth estimates could be in line for swingeing downgrades.

Latest numbers from the Society of Motor Manufacturers and Traders (SMMT) this month showed sales of second-hand vehicles fell for the second successive quarter in July-September, with 2,102,078 vehicles driving off the forecourt. This was down 2.1% from the corresponding 2016 period.

Demand for used autos, unlike those for brand new models, is clearly not in freefall. But Q3’s figures show that consumer appetite for cars is steadily worsening (sales of second-hand cars fell by a more modest 0.7% in the second quarter).

Motorpoint’s share price performance has been impressive against this backdrop with the retailer’s market value ballooning by 37% during the past two months.

But I reckon investors should take this opportunity to book profits given that broader economic pressures could drive demand for big-ticket items like cars into the dirt, looking down the road. And Motorpoint’s rising cost case causes further alarm as cost of sales jumped 17% in the first half to £445m.

In a hole

Like Motorpoint, Petra Diamonds (LSE: PDL) is also tipped to deliver stunning earnings growth. After being bitten by three consecutive annual earnings slides, it’s finally anticipated there will be a move in the right direction, with a 149% rebound in the period to June 2018.

Such a forecast creates a mega-low P/E ratio of 6.9 times, too, but I reckon investors should give the digger a wide berth today.

Sure, Petra Diamonds received good news in late September when Tanzania lifted an export embargo and striking workers returned to work.

But all things considered, I believe the mining giant carries far too much risk right now. Indeed, a pretty uncertain production outlook (stones output fell 4% to 1,053,817 carats during July-September due to operational issues at its Finsch asset and Kimberley Ekapa joint venture) signals that diamond prices are back on the defensive. Include news last month that the company is on the verge of breaching debt covenants and both negatives should deter investors from ploughing into Petra Diamonds.

The post 2 growth stocks I would avoid like the plague appeared first on The Twelfth Magpie.

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Royston Wild 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.