The airlines have been hit particularly hard, with British Airways owner IAG down more than 16%, at time of writing. Ryanair is down 10% and easyJet down by 13%. Aircraft engine maker Rolls-Royce has fallen 5.5%, as fears grow over international travel.

FTSE 100 energy giants BP and Shell are also down around 5% or 6%, as any Covid resurgence could hit demand for oil.

Who’s afraid of a stock market crash?

Judging by the sectors hit today, it’s beginning to feel a lot like March 2020. As well as FTSE 100 travel and energy stocks, entertainment enterprises are in the mire. Cineworld, Mitchells & Butlers and Restaurant Group are firmly out of favour. Online grocery delivery specialist Ocado Group is bucking the trend by climbing.

As Hargreaves Lansdown markets analyst Susannah Streeter has noted, scientists are calling the mutations “horrific” and of “great concern”. Their dire warnings have triggered a sell off in Asia, where Japan’s Nikkei and Hong Kong’s Hang Seng both fell by 2.6%, while in Europe, the DAX, CAC 40, and Euro STOXX 100 are all tumbling.

I have cautiously backed both BP and Shell in recent days, but lacked the courage to buy airline stocks which look too exposed to pandemic uncertainties. That is one reason why I am relatively sanguine about today’s events (at least from an investment perspective). It’s not the most important one, though. As ever in the middle of a stock market crash, the idea of selling any of my shares or funds simply doesn’t occur to me.

I’ll buy FTSE shares once they get cheaper

I’m still more than a dozen years away from retirement, and that gives my portfolio plenty of time to recover from the current setback. With luck, today’s Covid fears will have been overdone. Even if they’re not, it’s impossible to assess the impact on stock markets. There are just too many variables, including how central bankers will respond.

If the stock market crash does lead to a more protracted slump, further stimulus could be forthcoming, bolstering shares. Investors have been quietly making that bet for years. The US Federal Reserve has effectively been backstopping share prices since the financial crisis.

My wider point is that nobody knows where stock markets will go next. They could crash further. If they do, I still won’t sell. Instead, I would take the opportunity to pick up my favourite FTSE stocks or funds at a reduced price.

History shows that stock markets always recover after a crash, if you give them long enough. In my opinion, they remain the best way to generate long-term dividend income and capital growth for my retirement. Today’s grim news won’t change that.

The post Stock market crash: I’m still buying FTSE shares despite ‘horrific’ new Covid warnings 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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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado 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.

Being a sort-of-youthful 40-something, I like to think I’ve got many years left to build a great nest egg for retirement. As a result, my eyes are naturally drawn to investing in the best growth stocks on the UK market. Of course, this strategy also involves knowing what to avoid as much as what to buy. Here are what I believe to be three examples of the former.

AO World

Electricals retailer and lockdown beneficiary AO World (LSE: AO) was one of the best-performing stocks of last year. Had I bought the shares in mid-April 2020, I would have been sitting on a return of approximately 550% by the beginning of 2021.

Since then, however, it’s been a very different story. AO shares have tumbled 60% in value year-to-date (and 24% in 12 months). The issue here is that the white goods seller now has some tough comparatives to live up to. This is evidenced by last week’s six-month trading update. While like-for-like group revenue was 66% higher than two years ago, it’s up only 5% on a one-year basis. To make matters worse, this is a highly competitive space with low margins. 

One might argue that AO World shares now look much more tempting and offer a better margin of safety. However, a price-to-earnings (P/E) ratio of 45 remains staggeringly high considering the company is already being impacted by a shortage of delivery drivers and wider supply chain issues. 

Restaurant Group

Another growth stock I’d steer clear of right now is casual dining firm Restaurant Group (LSE: RTN). That’s despite the company’s shares almost doubling in value in the last 12 months (and having enjoyed a fair few meals at its Wagamama sites in the past). 

Despite restrictions having now been lifted, I’m inclined to think the recovery is fully priced-in. The end of the furlough scheme combined with the recent rise in energy and fuel prices mean that some people could be facing difficult times ahead. That will likely mean a reduction in discretionary spending such as eating out.

Yes, a resumption of travel abroad could see better trading at airports for RTN’s Concessions business. As such, news that the ‘amber list’ has now been scrapped is encouraging. However, wage inflation and a significant amount of debt on the balance sheet still give me cause for concern. If I were a holder, I’d be taking profits and moving on. 

Trainline

A final UK growth stock I’ll be dodging is ticket booking site Trainline (LSE: TRN). 

As one might expect, the FTSE 250 member’s shares fell heavily as lockdowns were enforced in 2020 and few of us commuted to work. Ordinarily, I’d see such a fall as an opportunity to buy, especially as a user of the company’s app myself.

And yet, despite restrictions now being lifted, TRN shares are down almost 9% in the last year. On top of this, they still attract interest from short-sellers. This suggests to me that the market remains sceptical over just how many of us will return to the office as regularly as before. Competition from other ticketing services (like the new state-owned Great British Railways) will be another worry going forward.

Trainline may be outperforming the wider market and doing well internationally, but all told, I just can’t see it increasing my wealth significantly as other UK growth stocks might.

The post 3 growth stocks I’m avoiding like the plague appeared first on The Twelfth Magpie.

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• 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?

Paul Summers 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.

Needless to say, this is fantastic news for Restaurant Group and the hospitality sector in general. So should I consider adding the stock to my portfolio? Let’s take a look.

Covid-19 impact on the Restaurant Group share price

Restaurant Group, as the name suggests, is an operator of restaurants and pubs around the UK. In fact, it’s the UK’s largest independent restaurant company, with nine popular brands, including Wagamama, Frankie & Benny’s, and Brunning & Price. In total, it has over 500 sites, with each brand offering a different set of delicacies from around the world.

There’s no question that Covid-19 has decimated the hospitality industry. With all its sites being closed down at the height of the pandemic, the Restaurant Group share price plummeted by nearly 70% within a matter of months.

Since then, things have improved, and the share price is now almost back to pre-pandemic levels. As of July last year, nearly all of its sites reopened, with 200 offering a delivery and takeaway option. Also, something that I find quite reassuring is despite the continuous disruptions, Wagamama restaurants achieved 11% growth in Q3 sales.

Many of these restaurants were closed once more following the Christmas lockdown. But it’s encouraging to see the firm quickly rebooting itself and achieving growth at the same time. This certainly makes me hopeful for the Restaurant Group share price when its locations open once again in April.

Risks to consider

The firm appears to have adapted well to the Covid-19 environment. But it certainly suffered some damage. 125 of its locations have been shut down permanently, with another 85 potentially closing depending on rent negotiations.

In addition, Restaurant Group has borrowed more money from its credit facilities to help keep the lights on.

What I find particularly concerning is that a significant amount of debt is maturing in 2022. Given the chaos caused by the pandemic, it’s very likely that the company will have to refinance the loan. Let’s suppose infection rates rise and the government’s timeline is extended. In that case, the refinancing terms could become very restrictive on the company, with the Restaurant Group share price suffering for it.

Another risk to consider is Brexit. The business’s supply chain extends into Europe, which with the new custom checks coming in place, could cause significant delays. New suppliers can eventually be found to fulfil orders within the UK. But until then, many of its sites could likely lose revenue as customers may not be able to order certain menu items.

The bottom line

Personally, I’m not particularly convinced that Restaurant Group is a good investment for me, even at the current share price.

The hospitality industry is tough to thrive in, and I simply believe there are far better opportunities to profit from the market recovery. Therefore, it’s not a stock I’ll be adding to my portfolio any time soon.

The post The Restaurant Group share price: is now the time to buy? appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Restaurant Group. 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 shares are down again today, despite what looks to be encouraging full-year results and a positive outlook. I don’t think it’s hard to spot why. 

Sales up 

Like-for-like sales rose 2.7% over the year to 29 December, with total sales up 56.4% to £1.07bn, thanks to the takeover of noodle chain Wagamama in 2018. 

Adjusted pre-tax profit also rose to £74.5m, compared to £53.2m in 2018. That said, the company reported a loss of £37.3m on a statutory basis, due to the underperformance of its leisure sites. 

Reflecting on today’s results, relatively new CEO Andy Hornby said the company’s prospects had been “transformed” by the Wagamama acquisition (despite a significant minority of its shareholders voting against the deal at the time). Ahead-of-schedule cost savings were also highlighted.

As a result of outperforming its markets, Restaurant Group now plans to focus on continuing to grow this and its Concessions and Pubs businesses at the expense of its Leisure portfolio. It’s aiming to reduce the number of sites of the latter, from 350 to between 260 and 275 by the end of next year. The company also plans to tackle its not-insignificant debt pile.

Unfortunately, all this will come at a cost to those already holding, with the £600m-cap business announcing today that it will “temporarily suspend” its dividend. Cue another drop in the share price (6%, as I type).

Restaurant Group traded on a forecast price-to-earnings multiple of 9 before markets opened this morning. With investors continuing to fret over the impact of the coronavirus on the global economy, I can’t see the shares heading significantly higher anytime soon, especially as prospective buyers will no longer be compensated for having the patience to wait for a sustained recovery in trading.

Factor in the hugely competitive environment in which it operates and the possibility that its entry into the US market might not go as smoothly as hoped and Restaurant Group remains firmly in my ‘avoid’ pile. 

One to watch

Despite today’s downbeat update on how the coronavirus was affecting trading, I’d be far more likely to grab a slice of travel concessions business SSP Group (LSE: SSPG).

Admittedly, now might not be the time to buy. While trading in the UK, Continental Europe and North America (which account for the vast majority of the company’s revenues) has been as expected, operations in other parts of the world have suffered. Passenger numbers at airports in China are roughly 90% lower year-on-year, with declines of 70% in Hong Kong, and between 25% and 30% in countries such as Singapore and Thailand. 

All this means SSP now expects sales in February will be 50% lower year-on-year in the Asia Pacific region. With operations in the Middle East and India also affected, this will likely reduce revenue by £10m-£12m and operating profit by roughly £4m-£5m.  

Clearly, SSP’s share price could face further pressure as the story develops. Nevertheless, I remain attracted to the company’s geographical spread and its ‘captive audience’ business model. As markets continue to head lower, this is one stock firmly on my watchlist as a potential long-term buy.  

The post Want dividends? I’d steer clear of this value trap! appeared first on The Twelfth Magpie.

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• 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?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP 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.

I reason why I’m so optimistic about the outlook for this company is its business model. The UK car insurance industry is notorious for its low-profit margins and lack of profitability, but Hastings is breaking the mould. The group relies on technology and customer data to help it achieve the best results.

Data advantage

This data advantage has helped the firm achieve sector-leading profitability. For example in 2017, one of the best years on record for the insurance industry as a whole, Hastings recorded a combined ratio of 73% compared to the industry average of 96.8%. In 2016, the UK car insurance industry reported an average combined ratio of 109%, Hastings’ ratio was just 78%. I think these numbers demonstrate Hastings arguably has the best business model in the UK car insurance industry.

Also, management has adopted a highly attractive dividend policy, whereby the group pays out the bulk of its profits to investors every year. City analysts reckon this means investors are in line for a 6.7% dividend yield this year, rising to 7.2% in 2020. Net profit has grown at a compound annual rate of 26% for the past six years. I don’t I think this trend will come to an end anytime soon as Hastings should continue to attract customers with its innovative offering.

With earnings growing at 26% per annum and a 7% dividend yield on the cards, I see no reason why the stock cannot produce a high teens total return for investors going forward. 

Growth returns 

Another FTSE 250 stock I’m willing to back as a millionaire-maker is Restaurant Group (LSE: RTN). This company has struggled to find its way during the past few years and, I will admit, the business hasn’t particularly enamoured me in the past.

However, it looks as if management has finally been able to slow the decline at the group’s core Frankie & Benny’s business, and this turnaround, coupled with the recent acquisition of Wagamama, seems to have put the company firmly back on a growth trajectory.

Group like-for-like sales for the 19 weeks ended 12 May jumped 2.8% and total sales, including the Wagamama deal, were up 57%.

Based on this sales growth, City analysts expect the group to report a 22% increase in earnings per share for 2020. This projection puts the stock on a forward P/E of 9.9, which looks to me to be a steal, considering the company’s growth. On top of this, the stock supports a dividend yield of 4.2%. 

This could only be the start of the company’s growth. Historically, the group has reported an operating profit margin of around 13%, but the margin fell to about 2% for 2018. If management can cut costs and improve efficiency, returning margins to historical levels, then I reckon profits could double or even triple from current levels.

This could produce potentially stratospheric gains for shareholders. That’s why I think this hospitality business has the potential to make you a million.

The post I think these 2 FTSE 250 dividend stocks could help you make a million 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
• 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 owns no share 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.

Why is Saga special?

The insurance market is tough. Most buyers see the product as a necessary evil, rather than a desirable purchase. That means, very often, decisions are made on price alone.

Insurance companies are fighting back by trying to find ways of offering additional services to their customers. They hope this will help to build loyalty and support higher profit margins.

In my view, Saga should have a head start in this market. It’s one of only a handful of major insurers I can think of which has a clear selling point — it provides products and services for over 50s only.

Alongside insurance and related travel services, this also includes a cruise ship holiday business — a sector that’s booming at the moment. The company has also built a loyalty programme with more than a million members who should be receptive to targeted marketing.

Do the numbers stack up?

Saga’s adjusted earnings are expected to have fallen by 6.5% during the ended 31 January. Analysts are forecasting a further 2% drop in 2019/20. This leaves shareholders exposed to the risk that dividend cover will gradually be eroded, resulting in a dividend cut and a falling share price.

My view is that this looks unlikely at the moment. The group’s cash generation — which supports the dividend — has remained stable and net debt fell by 6.7% during the first half of the year.

Meanwhile, insurance policy numbers have started to recover and the group says that bookings for its two new cruise ships are on track. With the stock trading on 9 time’s forward earnings and offering a 7% yield, I continue to see Saga as a turnaround buy.

Dining out

Another turnaround stock that’s in the headlines is Restaurant Group (LSE: RTN), which owns Frankie & Benny’s and has recently acquired the Wagamama chain of Asian restaurants.

Sales and profits have been in decline since 2016. Results published today showed that adjusted pre-tax profit fell by 8% to £53.2m last year, but total sales edged 1% higher to £686m.

The company says that its pub and airport businesses are performing well and that Wagamama is “continuing to outperform the sector.” In the meantime, detailed work to improve performance at Frankie & Benny’s and Chiquito is underway.

My view:

This is a complex turnaround situation that depends on good execution by management. Unfortunately, chief executive Andy McCue is due to leave shortly, adding to the uncertainty facing the firm. Another risk is that the group took on debt to buy Wagamama and now has net debt of £291m, which looks quite high to me compared to profits.

Despite these risks, I’m beginning to think that the worst may be over for Restaurant Group. With the stock now trading on 10 times 2019 forecasts earnings and offering a 5% yield, I think there could be an opportunity here. I’d rate the shares as a speculative buy.

The post This is what I’d do about the Saga share price right now 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.

Priced at 489p at the end of January, the very same stock now changes hands for over 70% less. Does this make it a bargain? Not yet, in my view. 

Vulnerable to Brexit

At first sight, the company’s strategy of doing everything possible to win market share appears to be working. As my Foolish colleague Kevin Godbold reported last week, revenue rocketed 75% to £70.1m over the first half of the financial year. Trouble is, operating losses rose by a higher percentage — 122% to be exact — to £25.6m. 

I sold my shares some time ago after becoming increasingly concerned by the pace at which the Solihull-based business was expanding overseas. While I understood management’s desire to capitalise on its first-mover advantage, I felt that the company needed to prove its business model closer to home first. I also became sceptical over its ability to withstand competition given that its pioneering low-fee approach is easily copied and could become the norm across the industry in time.   

Should Purplebricks reach a point where it is reporting consistent profits, I may become interested again. Having now trimmed the upper end of its revenue forecast for the current financial year to £165m-£175m from £165m-£185m on concerns over the impact of Brexit, however, I suspect this isn’t likely to happen for quite a while yet.

With a recent report from Rightmove stating that the average price of a home fell £10,000 over the last couple of months (the biggest such fall since 2012) I think there’s every chance that the shares could sink even further as market activity slows.

Wrong strategy

Frankie and Benny’s owner Restaurant Group (LSE: RTN) is another stock I’ll be distancing myself from next year. 

Like Purplebricks, the company’s share price has suffered over 2019 with a 33% reduction in value since the start of the year. Over a slightly longer period — since March 2015 — the shares are down almost 73%.

I can’t see things recovering any time soon, particularly following its decision to buy Wagamama. It may be an excellent brand, but I can’t help thinking that revitalising its other restaurants should be more of a priority for management than spinning yet another (large) plate. Since 40% of shareholders voted against the deal, it seems I’m not alone. 

Moreover, the acquisition has surely come at the wrong time. Dining out is a discretionary spend. In troubled times, it’s one of the first things to go. The fact that people already appear to be reining-in their spending as we approach our official date of departure from the EU (29 March) is an ominous sign for those operating in the highly-competitive restaurant sector. Indeed, accountancy firm Moore Stephens revealed yesterday that the number of insolvencies in the industry has increased by a quarter in 2018 (to 1,219) and is now at the highest level since it began following the sector in 2010. 

On a forecast price-to-earnings (P/E) ratio of nine for the next financial year and offering a tempting 6.7% yield based on the current share price, I can understand why some investors may be attracted to Restaurant Group. For me, however, it remains very much a value trap. 

The post Purplebricks isn’t the only heavy faller I’ll be avoiding like the plague in 2019 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?

Paul Summers 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.

Distributions to investors have cushioned the decline slightly over the past 12 months. Since mid-November 2017, the stock is down 23%.

While the recent declines are disappointing for existing investors, they have pushed the dividend yield on the shares up to 9.1%, significantly improving Crest’s attractiveness for income seekers. 

The question I’m planning to answer today, is whether or not I feel it’s worth buying shares in Crest for its income after recent declines? 

On the rocks 

As my colleague Andy Ross recently highlighted, investors have been dumping shares in Crest for several reasons. For a start, investor concerns about the state of the UK housing market have lead to widespread selling of housing stocks across the board. Secondly, Crest confirmed investor fears about the state of the industry when it warned on profits last month. 

This is hardly a favourable backdrop for the company, but I don’t think it’s time to give up on the home-builder just yet. 

I believe one of the most telling indicators of a company’s prospects is insider dealing (the buying and selling of shares by management). Recently, Crest’s executive chairman forked out £450,000 to buy stock in a business, a significant figure which works out at around 83% of his annual salary. This seems to me to be a tremendous vote of confidence in the business. While it’s no guarantee Crest’s shares will reverse their recent decline, with so much money invested, Crest’s management is incentivised to do whatever it takes to return the business to growth. 

With this being the case, I think that now could be an excellent time for risk-tolerant income seekers to follow management and buy into Crest’s dividend income stream. With a yield of more than 9% on offer at time of writing, in my opinion the risk is indeed worth the reward.

Avoid at all costs 

On the other hand, one company I would avoid at all costs is The Restaurant Group (LSE: RTN). 

After struggling to improve the performance of its legacy businesses, management of this casual dining chain has now decided to launch a takeover offer for the firm behind the Wagamama group of restaurants.

To fund the deal, Restaurant Group’s management has decided a rights issue is the best course of action to raise gross proceeds of approximately £315m. The 13-for-9 rights issue, according to documents published today, will be completed at 108.5p per share, a significant discount to the current share price of 246p. 

Execution is the primary risk I see here. Restaurant’s management is trying to buy growth for the business, but group CEO Andy McCue, who joined the company in September 2016, has a mixed record. Despite his best efforts, so far the business has continued to flounder. I’m sceptical that this acquisition will help revive the enterprise’s fortunes. 

So for the time being, I’m staying away. I would rather own FTSE 250 income giant Crest Nicholson, which seems to have a more sustainable outlook.

The post Can you afford to ignore this FTSE 250 dividend champ yielding 9.1%? 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?

Rupert Hargreaves owns no share 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.

Of course, the outlook for restaurants and retailers generally has been downbeat in recent months. Sports Direct (LSE: SPD) has seen its share price decline by 20% in the last year, with weak consumer confidence causing challenges across the industry.

Looking ahead, could either stock now offer good value for money? Or, do their risks still make them unappealing investment opportunities?

Takeover

The acquisition of Wagamama is set to create an enlarged business which will benefit from cost synergies and site conversion synergies of around £22m. It also provides scope to accelerate Wagamama’s UK rollout through Restaurant Group’s site conversions, while also using the company’s existing relationships to expand its concessions presence. International growth opportunities could be improved, while the combined business intends to pilot pan-Asian cuisine ‘food-to-go’ offerings.

While the deal could provide a boost to Restaurant Group’s growth rate, the reality is that the dining industry is experiencing a challenging period. There have been a number of CVAs across the industry, while store closures have become a fact of life for many previously successful entities. As a result, and while there could be scope for synergies and a stronger overall business, I feel the rate of growth on offer may be somewhat lacking due to weak consumer confidence.

Despite this, Restaurant Group has a price-to-earnings (P/E) ratio of around 13. This suggests that it may lack a margin of safety and could be a share to avoid at the present time.

Improving outlook

The retail sector is also experiencing a difficult period. Consumers seem to be unsure about their own financial outlooks ahead of Brexit, and this could mean that they become increasingly price-conscious. While this may be bad news for mid-market operators, value-focused stores such as Sports Direct may be able to capitalise on increased appetite for discounts among potential customers.

The company is forecast to post a rise in earnings of 15% in the current year, followed by further growth of 10% next year. After its share price fall over the last year, it trades on a price-to-earnings growth (PEG) ratio of 1.6, which suggests that it may offer a margin of safety.

Certainly, there are risks ahead for Sports Direct. It may be hurt by the continued shift of shoppers towards online offerings, while high business rates may make it less competitive than some of its online-focused sector peers. However, with what seems to be an improving financial outlook, a value-focused business model and a low valuation, I think it could generate impressive share price performance in the long run.

The post Think the Restaurant Group and Sports Direct share prices are bargains? Read this now appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Bowling a winner?

Last time I looked at 10-pin bowling operator Hollywood Bowl Group (LSE: BOWL), I was impressed. The UK’s largest operator of bowling alleys appeared to have a repeatable formula for growth and high profit margins.

What’s changed? Nothing really, as its trading update published today suggests the picture remains attractive. Like-for-like sales rose by 1.8% during the year to 30 September. New sites lifted total sales by 5.8%.

These are good numbers, although it’s worth noting that sales growth appears to have slowed slightly this year. In 2016/17, like-for-like revenue rose by 3.5% and total revenue rose 8.8%.

Happily, profits are expected to be in line with market expectations. According to the company, pre-tax profit should be 10% higher, at about £23.2m. Broker forecasts suggest that this will translate into adjusted earnings of 12.4p per share, putting the stock on a P/E of about 16.8.

Keep buying?

During the first half of this year, the average customer spend per game rose by 5.5% to £9.20. The number of games played rose by 3.6% to 6.9m. This organic growth helped to increase the group’s operating margin from 22.2% to 23.6%.

High margins and low debt mean that cash generation is very strong. The company said today that it’s considering additional shareholder returns this year, on top of the regular dividend.

City analysts expect profits to continue rising next year. They’ve pencilled in earnings growth of 10%, which puts Hollywood Bowl on a 2018/19 forecast P/E of 15, with a 3.6% yield. I’d keep buying.

Tasty treat or yesterday’s news?

One company I’ve been less confident about is casual dining firm Restaurant Group (LSE: RTN), whose biggest business is “American Italian” family restaurant chain Frankie & Benny’s.

Restaurant Goup’s share price has fallen by another 21% since I last wrote about the shares in March 2017. At the time, I warned that it might still be too soon to buy. Is that still true today?

The firm’s latest results show that sales fell by 2.1% to £326m during the 26 weeks to 1 July. Adjusted pre-tax profit was 20% lower, at £20.1m.

Management says that trading was hit by cold weather at the start of the year, and by the World Cup in the early part of the summer. In support of this claim, like-for-like sales rose by 2.4% during the six weeks to 26 August.

One big risk

The main problem I can see is that Restaurant Group is cutting prices to boost sales, despite rising costs. The company’s numbers show that its adjusted operating margin fell from 7.9% during H1 2017, to 6.4% during the first half of this year. To put this into context, the group’s operating margin was 12.7% in 2014.

I suspect that this turnaround will succeed, but that the group’s profit margins may have to stay low to enable the group to compete against newer rivals.

Restaurant Group shares currently trade on a 2018 forecast price/earnings ratio of 14.8, with a prospective yield of 5.3%. I’d rate this as a potential turnaround buy although, personally, I remain cautious.

The post Have £1,000 to invest? 2 dividend stocks that could beat the FTSE 100 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 recommended Hollywood Bowl. 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.