Part of the reason for its disappointing performance of late could be profit-taking. This would be unsurprising given that many of its investors will be sitting on large profits. However, there has also been a degree of uncertainty regarding its financial performance that has culminated in a negative research note being published about the company. Here’s why the stock could still deliver high returns.

Disputed prospects

On Monday, IQE responded to the negative research note that was released on Friday by ShadowFall Capital & Research. The company stated in its update that the allegations contained within the report are without merit. It went on to state that it also creates a misleading analysis of its financial position, and that it holds itself to the highest standards of corporate governance, transparency and integrity.

The update released by the company goes into detail regarding areas such as its asset valuation, joint ventures and free cash flow generation. Overall, the business continues to anticipate that revenue for 2017 will not be below £150m. It also remains confident in its outlook for 2018 and beyond.

Uncertain period

Of course, disputes regarding accounting practices and the health of a company’s business model can cause share prices to become volatile. This may prove to be the case for IQE in the short term. However, in the long run the company appears to have investment appeal. In the 2018 financial year it is due to record a rise in its bottom line of 28%. This is expected to be followed by growth of 40% in the next year.

Since the stock trades on a price-to-earnings growth (PEG) ratio of 0.4, it seems to offer good value for money at the present time. This suggests that while potentially volatile, its share price performance could improve in the medium term.

Turnaround potential

Also offering turnaround potential after a challenging period is energy storage solutions company RedT Energy (LSE: RED). It reported a positive 2017 trading update on Monday which showed that orders for its units have increased by 269% since its interim results. Furthermore, there has been an increase in final stage customer selection of 11% during the same time period.

Looking ahead, the company is set to continue its focus on market penetration within its core segments. It will aim to accelerate volume orders for delivery and close large projects for delivery in 2019.

With losses due to narrow from £6.5m in 2017 to £1.9m in 2019, the outlook for the company appears to be positive. Investor sentiment could improve if RedT Energy is able to deliver stronger financial performance, and this may help it to recover following its 25% share price fall in the last three months. As such, it could be worth a closer look for less risk-averse investors.

The post Why IQE plc isn’t the only turnaround stock I’d buy after 20% share price drop appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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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.

I see such reasons in the case of Sirius Minerals (LSE: SXX), which is currently pre-revenue, and Redt Energy (LSE: RED), which is generating revenue but not yet profit.

Unique investment proposition

Sirius Minerals represents a unique investment proposition. It’s sitting on what we’re told is the world’s largest known high-grade polyhalite deposit, right under the North Yorks Moors national park. The company’s development of it will be of significant national importance, in terms of jobs and GDP, with an expected mine life of 100 years.

Management has negotiated multiple planning permissions, raised funds and is now in the early stages of construction. First production is targeted for 2021, with full volume of 20m tonnes per year being reached in 2027.

Valuation

When I last ran the rule over the company, I came up with a valuation for 2027 based on what I thought were reasonable assumptions: revenue of $3bn on polyhalite at $150 per tonne (about the price at which the company’s current offtake agreements have been struck), an EBITDA margin of 78%, a net debt/EBITDA ratio of around two, an enterprise value/EBITDA multiple of 10 and a guesstimate of 5.6bn shares in issue (compared with 4.5bn today).

My calculations produced a market cap of £15.2bn and a share price of 271p (compared with £1.15bn and 25.8p today). However, due to a royalty agreement in the financing package, my revenue projection needs to be revised down to just under $2.9bn. The exchange rate has also moved from $1.25/£1 to $1.34/£1. As a result, my projected market cap and share price fall to £13.5bn and 241p. Nevertheless, the indicative more-than-ninefold increase in the share price in 10 years strikes me as still attractive for this unique project versus the risks.

Small-cap with substance

Shares of energy storage firm Redt Energy are trading 2.4% higher as I’m writing, after the company released its half-year results today. This AIM-listed stock has a share price of 10.75p and market cap of £70.3m.

It may not have the unique features of Sirius but it does have valuable patented technology. This, combined with low maintenance requirements, “delivers industry-leading lowest levelised cost of storage and total cost of ownership results.”

Promising growth prospects

Today’s results show there’s clear demand for the company’s products, with orders for its units increasing 220% over the last six months alongside a 78% increase in production and deployments. It’s also at the final stages of customer selection on €16.5m worth of units and has an active customer pipeline of €323m.

First-half revenue of €4.5m is forecast to rise to €12.5m for the full year, followed by €37.4m in 2018 and €71.4m in 2019. This would see a rating of 6.4 times sales fall rapidly to 2.1 and then 1.1. The company is anticipated to post a maiden profit in 2019 and trades on 10.8 times that year’s forecast earnings, while current cash of €13.2m and no borrowings puts it on a solid financial footing.

While there’s no getting away from the general risks of investing in smaller companies, Redt is a business I’d consider buying a small slice of.

The post Sirius Minerals plc isn’t the only undervalued stock I’d consider buying today appeared first on The Twelfth Magpie.

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• 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?

G A Chester 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.

Recovery potential

Since the start of the year, shares in Petra Diamonds (LSE: PDL) have slumped by 17%. While disappointing, the company’s long-term share price outlook remains relatively positive. Evidence of this was seen on Monday when it released a production update for the third quarter of the year. Petra Diamonds was able to make further progress with its expansion programmes, with higher run of mine (ROM) grades achieved during the period.

While production during the quarter was flat, it was able to deliver a 15% increase in production for the first nine months of the year. This helped to push sales 27% higher, with improved rough diamond prices also boosting the company’s top line. Furthermore, underground expansion programmes remained in line with expectations. And with cash at bank rising to $66.2m from $39m in March 2016, the long-term outlook for the business appears to be positive.

Looking ahead, Petra Diamonds is forecast to record a rise in its bottom line of 32% this year, followed by further growth of 74% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.1, which indicates that a recovery could be on the cards. The company’s financial performance may be volatile, but on a risk/reward basis its now lower share price suggests a buying opportunity.

Strategy progress

Also reporting on Monday was energy storage technology company RedT Energy (LSE: RED). Although its financial performance in 2016 was in line with management expectations, its share price has fallen by around 41% in the last six months.

The company’s transformation during 2016 saw it move from being a technology development company to delivering a manufactured, commodity product. It is now ready to move into a commercialisation phase and since it has no debt and a cash balance of €17.2m, it appears to have the funding required to move ahead with its growth strategy.

Clearly, there is some way to go until the business is profitable. In the current year and next it is forecast to record losses. However, it has proven technology which could become increasingly popular in future years.

Furthermore, RedT Energy has an active customer pipeline of €246m and a clear strategy through which to take its product to market. Therefore, while at the riskier end of the investment spectrum, the stock could be of interest to less risk averse investors seeking a long-term opportunity to outperform the wider market.

The post 2 ‘turnaround’ stocks to watch in May 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?

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.

According to today’s press release on the matter, the unit will be provided by Jabil Inala to an unnamed African telecommunications company. Unfortunately, no financial details on the sale were provided. However, in this case, the financials are not overly important as it’s more about the proven demand for Redt’s products. 

Indeed, this is the second significant transaction for the company in as many months. Last month the company announced that it had delivered four of its 15 kilowatt-240 kilowatt-hour energy storage machines to the Scottish Isle of Gigha.

And these deals have propelled the company’s shares higher by around 70% since the beginning of September. If the company continues to issue such positive news, there’s reason to believe shares in Redt could surge to a new 52-week high of 20p. 

Positive newsflow drives growth 

The newsflow from Redt over the past few months has only reinforced the investment case for the company. You see, Redt’s mission is to design, build and sell long-duration energy storage machines, which will revolutionise the renewable energy industry. Renewable energy is big business, but storing energy generated from renewable sources is still a developing market. Redt hopes to change that, and the company is heading in the right direction. 

While the company is still in its early stages, management is planning to ramp up the firm’s production of its liquid vanadium energy storage units over the next two years. As Redt develops its manufacturing capacity, the cost of production per unit is expected to decrease considerably. Meanwhile, sales should expand as Redt develops, refines and markets its technology. 

According to management, there’s already plenty of interest in the units from industrial groups, a statement that has been justified by recent sales, and City analysts expect big things over next two years. Sales of £5m are expected this year (up from £4m at the beginning of 2016) and for 2017 analysts have pencilled in sales of £16.1m — a staggering growth rate of over 220%. The City expects Redt’s pre-tax loss to narrow significantly over the next two years, falling to £2.3m for 2017 with a profit expected in the years after.

Still, while Redt’s grow projections may be tempting, as with all early stage growth companies there are plenty of risks ahead for investors. For example, at 30 June 2016, the Group held cash and cash equivalents of €5.5m, of which €4.3m was proceeds from the issue of share capital. The cash outflow from operating activities for the period was €3.6m. These figures imply that unless, Redt sees a sudden inflow of cash from sales over the next few months, the company might have to tap shareholders for funds again while it ramps up production. 

The bottom line 

All in all, Redt is heading in the right direction, but the company needs more sales to prove to investors that it can stand on its own two feet. If the firm continues to record sales deals as it has done in the past two months, a new 52-week high of 20p is not unrealistic. 

The post Can Redt Energy PLC hit 20p before the end of the year? 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?

Rupert Hargreaves 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.

Still, if you do your research and spend time carefully choosing the most attractive small-caps, the returns available can be life changing.

Redt Energy (LSE: RED) is just one small-cap that may have the potential to revolutionise your portfolio’s returns. Formally known as Camco Clean Energy, Redt develops energy storage technologies, and while the company is still in its early stages, there’s been plenty of positive news flow over the past 12 months.

Redt is planning to ramp up the production of its liquid vanadium energy storage units over the next two years and as the company develops its manufacturing capacity, the cost of production per unit is expected to decrease considerably.

According to management, there’s already plenty of interest in the units from industrial groups, and City analysts expect big things over next two years. Sales of just £3.4m are expected this year but for 2017 analysts have pencilled-in sales of £18.5m, a staggering growth rate of over 400%. The City expects Redt’s pre-tax loss to narrow significantly over the next two years falling to £1.2m for 2017 with a profit expected in the years after.

With such an impressive growth rate on the cards, Redt could be one company to watch going forward.

Debt deal

The market seems pleased with a debt restructuring deal announced by Iofina (LSE: IOF) this morning with shares in the company rising by 10% in early trade. The restructuring deal will see the maturity date of Iofina’s existing convertible debts of $20m extended to 2 June 2019, and interest rates will be lowered from 6% to 5%. What’s more, to help with cash flows under the terms of the new agreement accrued interest will be rolled up into the loan principal so it can be paid at maturity.

Along with this new debt deal, one of Iofina’s existing creditors Stena Investment has agreed to extend an additional $10m credit line to the company to finance expansion plans. The details of this new credit deal are expected to be finalised within the next 30 days.

When it comes to small-cap investing, it’s often best to avoid the companies with high levels debt as if things don’t go to plan, shareholders will have to foot the bill for the company’s excessive spending. For example, right now if Iofina’s existing loans were converted, the debt would equate to around 45% of the group’s existing share capital.

A long way to go

Early-stage miner Amur Minerals (LSE: AMC) is another high-risk play. The company is still in the early stages of developing its nickel/copper Kun-Manie prospect in Far East Russia. Even though recent drilling results showed a higher grade of ore than was initially expected, Amur has a long road ahead of it before it can bring the mine into production. Indeed, last year the company informed the market that it would cost an estimated $312m to develop a permanent access road to the nearest suitable rail line for Kun-Maine.

With a market cap. of only £25m, Amur is facing the prospect of taking on a near-crippling amount of debt just to fund the construction of the access road.

The post 3 potential ten-baggers? Redt Energy plc, Iofina plc and Amur Minerals corporation appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.

Shares in financial services company Atlas Mara (LSE: ATMA) have risen by around 15% today after it confirmed it has had discussions with a consortium of investors regarding the potential acquisition of Barclays’ stake in Barclays Africa. Barclays’ 62% stake is set to be reduced as part of a new strategy by the bank’s new management team and with Atlas Mara’s management supporting the exploration of a potential combination between the two companies, a deal could be on the cards.

This could be a sound move for Atlas Mara, since the company — which which was co-founded by former Barclays’ CEO Bob Diamond — is intent on building up its sub-Saharan presence, and a combination with Barclays Africa could have a positive impact on accelerating that process. Clearly, there is no guarantee that any combination will be effected, but the potential for it could lead to further gains in Atlas Mara’s share price in the short run. And with Africa offering significant long term growth potential within the financial services space, the company could be worth a closer look for less risk averse investors.

Upbeat

Also among the major movers today is Plexus (LSE: POS), with the oil and gas engineering services company raising $5m through a subscription deal with Russian oil and gas equipment maker LLC Gusar. This will involve Plexus issuing 6.8m shares at 52.05p per share, and at the same time as the subscription, Plexus, Gusar and Konar have also entered into a commercial agreement under which Plexus will work with them to finalise an additional licence agreement to enter Russia’s larger and more active surface land and platform production well-head equipment markets.

Clearly, the market is upbeat about today’s news, with Plexus’s shares moving 8% higher. The subscription agreement should enable Plexus to fast-track its entry into Russia’s large and important oil and gas production sector and further diversifies its revenues away from its traditional North Sea jack-up exploration market. As such, it could have a positive impact on Plexus’x future share price performance and for long term investors who can live with above average risk, Plexus could prove to be a sound buy.

Volatile

Meanwhile, shares in Redt Energy (LSE: RED) have slumped by 15% today despite it reporting a €700k profit for the 2015 financial year. This is a significant improvement on last year’s €2.2m loss and was largely due to a rise in revenue from €5.6m in 2014 to €11.1m in 2015, with it successfully shifting towards a pure play energy storage business.

However, the market seems to have reacted negatively to Redt Energy’s decision to take the commercialisation of its energy storage system step-by-step, and to try and avoid falling into the trap of selling a product that is not market-ready. As such, the company’s profitability growth may be slower than many investors had anticipated, although Redt continues to believe that there is latent demand for a storage system that performs reliably and economically. As such, it could be worth a closer look for less risk averse investors, although its shares may remain volatile in the short run.

The post Why Atlas Mara Ltd, Plexus Holdings plc and Redt Energy plc are among today’s top movers! 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?

Peter Stephens owns shares of Barclays. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.