However, does this provide a buying opportunity for new investors? Will the company be able to deliver dramatically improved performance over the long run?

Update

The update released by the company focused on a review of the guidance provided to the market. In undertaking this process, the company noted that the guidance currently in the market uses a publishing-only baseline for 2016 which does not reflect the benefit of £2.1m relating to the reduction in the amortisation of capitalised pre-publication costs. This means that the baseline for 2017 and beyond has been set too high. As such, the update essentially amounts to a profit warning and a downgrade to the company’s mediu- term outlook.

The update also discusses the challenges faced by the company at the present time. It is experiencing a soft retail environment in domestic markets, which is now set to result in a lower than expected trading performance in the year to date. But there is a more pronounced second-half weighting, with the company confident that its strong publishing programme will perform relatively well in the second half of the year.

Looking ahead

Clearly, Quarto is experiencing a transitional period at the present time. It is seeking to refocus on its core publishing business at a time when trading conditions are particularly challenging. It has also engaged in asset disposals which have caused the company’s performance to be more weighted to the second half than in prior years. As well as this, the company has changed its CFO, which it could be argued brings further uncertainty to its near-term outlook.

Despite this, the business continues to make progress with its strategic objectives according to Tuesday’s update. Its new organisational structure has the potential to create a more nimble business which could be more flexible in its approach to changes in future demand.

Investment prospects

With the company facing a difficult outlook, its share price could remain highly volatile. Further falls in its valuation cannot be ruled out. Although it is making encouraging progress regarding the changes it is making to its business model, doing so while trading conditions are tough means its financial performance may suffer.

As such, it may be prudent to await further news from the company, or else for its share price to stabilise. If it is able to deliver improved performance in the second half of the year, its stock price could rise. But between now and then there may be better options available elsewhere.

The post Is Quarto Group Inc a falling knife to catch after dropping 25% today? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any 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.

Quarto is an illustrated book publisher and distributor, with a market cap of around £50m, and it’s just released full-year results that beat expectations. With adjusted pre-tax profit up 18%, adjusted earnings per share rose 13%, and the total dividend of 9.5p per share is 6% ahead of last year and yields 3.8% — and it’s covered 3.4 times by earnings. Net debt was cut by 10% too, which is a good sign, with chief executive Marcus Leaver telling us that the firm intends to “steadily reduce net debt further“.

Forecasts suggest two years of EPS growth at 11-12% per year, which would put the shares on a P/E multiple of under seven for 2016, dropping to just six on 2017 forecasts, and would provide PEG ratios of around 0.6. That suggests good growth value to me, and on these fundamentals I’d say Quarto is looking attractive.

Solar power

Shares in PV Crystalox Solar (LSE: PVCS) perked up 4% in early trading to 9.7p, after full-year results revealed an increase in revenues from €53.3m to €64.5m. The company makes photovoltaic silicon wafers, used for capturing solar energy, and it’s been suffering from weak pricing. But chief executive Iain Dorrity told us that the price of wafers “has shown some modest recovery during recent months while the price of polysilicon, the key raw material, has fallen to historic lows“, and that wafers can now be sold at more than their cash cost of production.

The company still widened its loss for the year and is extending a strategic review of its business in what are still difficult trading times. Vernalis had net cash of €12.7m on its books at the end of December, albeit down from €24.6m a year previously and possibly close to the limit if it suffers a further loss in 2016. But analysts are expecting just about break-even. It sounds like 2016 could be a pivotal year — and if demand for solar energy is on the rise, we could be at a good (if risky) buying point.

Medical recovery

My third candidate today is pharmaceuticals firm Vernalis (LSE: VER), whose first-half results led to a 12% drop in the share price to 52p. The shares soared to 87p back in September 2015 on the back of hopes for the firm’s Tuzistra XR cold treatment, but since then shareholders have been hit with a 40% fall.

Interim results showed a revenue increase to £6.1m from £5.7m, with Tuzistra XR contributing £0.6m to that — and it represents the direction the firm is going in the “major transformation in our business” described by chief executive Ian Garland, to specialize in cough and cold treatments.

There’s no annual profit forecast yet, but predicted losses per share are tumbling and the four brokers offering an opinion have Vernalis as a ‘strong buy’. It’s another risky one, but if profitability can be achieved by 2018 then we might be on to a winner.

The post 3 Small Caps Set To Soar: Quarto Group Inc, PV Crystalox Solar PLC, Vernalis plc? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.