Global portfolio

What really stands out to me with JD is its recent acquisitions. Not only do I think its expansion strategy will provide long-term value, but it also seems to be providing the firm with an instant boost. Shoe Palace and DTLR, acquired in December 2020 and March 2021, respectively, generated £72.9m for the firm, according to its half-year results. For me, that’s an attractive factor when considering adding the FTSE 100 stock to my portfolio. Should returns like this continue, I would expect to see a further rise in the share price.

The £70m injection is only a slither of the impressive half-year results. Revenues were at nearly £3.9bn for the period, over a 50% increase from 2020, while operating profit excluding exceptional items was up by almost 400% at £471.7m. Profit before tax and exceptional items also rose to £170.8m in its core market (the UK and Republic of Ireland), a 225% increase from 2020 and 48% from 2019. For a potential investor like myself, these are appealing figures.

What also attracts me is the size of its portfolio. Globally, it has over 3,300 stores in 29 territories under its umbrella. This opens up an array of opportunities. And as the business continues to expand, I think shareholders will begin to see greater benefits. Yet this large exposure can also be a risk as we have seen so evidently with the pandemic over the past 18 months as sores were forced to close.

JD concerns

What does concern me, and as my fellow Fool Royston Roche highlighted, is suppliers/competitors such as Nike and Adidas. The fact they’re selling directly to customers may allow them to benefit from better margins, although JD does have exceptionally good relationships with both of these brands. Also, direct rival Sports Direct (owned by Frasers Group) is expanding and elevating its offer, and boss Mike Ashley may now be more determined to do so after the recent sale of Newcastle United. The firm’s plan to expand into Europe could damage JD’s market share. This is a major issue for me as it could negatively impact the JD share price.

Why I would buy

Although I’ve raised concerns, I do have a bullish outlook on JD. The latest set of results provided will no doubt give shareholders a confidence boost, but what most impresses me is the return from its two latest acquisitions. With such a large portfolio, I think the business could see real benefits from its global presence. As such, I would add JD to my portfolio today.

The post Why I’d buy this FTSE 100 stock right now appeared first on The Twelfth Magpie.

More reading

• Still stubbornly in pennies, will the JD Sports share price hit £1 again?
• Your ISA allowance is waiting! 3 dirt-cheap stocks to consider right now
• See what £12,000 in explosive JD Sports shares 1 month ago is worth today
• 2 FTSE 100 bargain stocks to buy in June?

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Nike. 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 market dogs

Aston Martin (LSE: AML) makes undeniably beautiful cars. As an investment, however, it’s been an absolute dog.

The shares have now fallen 75% in value since arriving on the market, making it one of the worst-performing stocks in the FTSE 350 in 2019. Indeed, I can’t help thinking that it will be regarded as a perfect example of why it’s usually best to avoid buying stock in newly-listed companies until they’ve been able to prove themselves. 

Having fallen so far, does Aston Martin now offer a great opportunity for contrarian investors? Perhaps. A valuation of just over £1bn makes more sense than the price-tag originally slapped on the business.

That said, I wouldn’t rule out a funding drive at some point given the company’s precarious finances, which could hurt the shares even more. Unsurprisingly, there are no dividends to speak of — something I tend to look for as compensation for being asked to wait for a recovery. 

Thanks to its uncanny ability to make the headlines for all the wrong reasons, retailer Sports Direct (LSE: SPD) is another stock I’m steering well clear of, especially after the PR disaster surrounding July’s full-year results.

There’s been a lot of discussion as to whether Mike Ashley’s strategy of buying up struggling high street firms is inspired, reckless or just plain odd. Given that Debenhams was a non-starter and House of Fraser is already regarded as being in “terminal decline“, I think we can safely dismiss the first option. Like a compulsive shopper, however, he’s content to ignore investors’ concerns and just keep spending.

Having declined over a third in value in 12 months, the mid-cap’s shares now trade on a little less than 13 times earnings. Considering there’s no dividend, returns on capital are falling, net debt is rising and the company has been unable to appoint an auditor. It’s too expensive as far as I’m concerned. Personally, I think Ashley would be doing the market a favour by taking the company back into private hands.

My final pick of stocks I’ll be avoiding is FTSE 100 constituent and grocer Sainsbury (LSE: SBRY).

Although the sector should remain fairly resilient during tough economic times (people always need to eat), I’d say the grocer is the worst pick of a hyper-competitive bunch, even more so since its proposed merger with Asda was blocked by the CMA. With Tesco having stabilised, Aldi and Lidl continuing to steal customers and Morrisons building stronger ties with Amazon, the UK’s second-biggest food retailer by market share looks rather lost in comparison. 

Its shares now trade at their lowest level in decades. A forward price-to-earnings (P/E) ratio of 10 and dividend yield of 5.3% might look enticing (my Foolish colleague Karl Loomes certainly thinks so), but I’m struggling to identify a catalyst for the company to bounce back to form. If it posts more bad news in November’s interim results, I suspect the probability of Sainsbury being chucked out of the top tier will be very high. 

The post 3 nightmare stocks I’d run a mile from appeared first on The Twelfth Magpie.

More reading

• By June 2027, Aston Martin shares could turn £5,000 into…
• £2k invested in Aston Martin shares a month ago would currently be worth…
• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?
• Could Aston Martin be one of the best stocks to buy right now?
• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off

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.

However, fast forward to today, and my thoughts on the stock are very different. It’s become apparent that this is a company with some serious issues, and as such, the shares now have very little investment appeal, in my view. Here’s a look at a few of the company’s problems. 

Flawed business model

Let’s start with the business model. If you’ve ever been into a Sports Direct store, you’ll know that there’s a strong focus on cheaper brands such as Karrimor, Dunlop, and Slazenger. If you’re looking for a top-of-the-range pair of running shoes from the likes of Nike, Adidas, or Asics, you’re going to struggle. Personally, I think this focus on cheaper brands is backfiring in a massive way.

The demand for premium sporting goods and apparel has never been greater. Just look at the share prices of Nike and Adidas – both stocks are up nearly 50% in the last two years alone. Similarly, look at JD Sports Fashion, which focuses heavily on these brands. Its shares up are nearly 80% in two years. Yet Sports Direct’s share price has fallen around 45% over the same period.

Something is clearly wrong and we can’t blame the UK high street here as Sports Direct has a strong online presence. For a company whose mission statement is “To become Europe’s leading ELEVATED Sporting Goods Retailer”, it has a long way to go.

Toxic corporate governance

The next main problem with Sports Direct is its corporate governance (the way the company is controlled). In short, it stinks. Not only did the company delay its final results on 18 July (a huge red flag) but the group then failed to publish its results on time last Friday morning and didn’t end up publishing them until 5.19pm – nearly an hour after the market closed.

Naturally, investors were unimpressed with this development, with Neil Wilson, market analyst at Markets.com, saying “it’s a total and utter shambles”, and David Cumming, head of UK equities at Aviva Investors stating that “Sports Direct is almost a case study in failed corporate governance.”

This kind of activity, combined with the fact there’s no dividend, demonstrates that there’s literally zero regard for shareholders.

Plenty more issues

There are plenty of other concerning issues too. For example, the full-year results themselves were not good. For the year, underlying basic earnings per share fell 8% and for FY2020, the company abandoned all guidance. In addition, the group announced that it has been hit with a £605m tax bill from Belgian Authorities and that CFO Jon Kempster has resigned.

Then, there are Mike Ashley’s random spending sprees. The investment in Debenhams backfired and in relation to House of Fraser, Sports Direct has said: “The problems are nothing short of terminal in nature.”

Finally, there appear to be conflicts between the company and auditors, with Ashley stating: “Our early discussions with the Big Four have thrown up some barriers.”

These are all red flags. Putting everything together, the company is a basket case, in my view. I’d avoid the stock at all costs.

The post Sports Direct shares: why I’d avoid them at all costs appeared first on The Twelfth Magpie.

More reading

• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• 3 shares to consider buying for the 2026 World Cup

Edward Sheldon owns shares in JD Sports Fashion. The Motley Fool UK owns shares of and has recommended Nike. 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 currently suspended and, while stores continue to trade, remaining shareholders, including Ashley, will likely be wiped out. Investing can be brutal sometimes.

That said, I do believe Debenham’s situation is a useful reminder of things that Foolish investors always need to be on the lookout for.

1. Big debt

Debenhams has debt — £621m of it. By contrast, the market capitalisation of the whole company was just £23m or so when shares were suspended on Tuesday. 

One of the first things to look for when sizing up a potential investment — particularly in uncertain political and economic times — is how much debt the company carries. Ideally, it won’t have any at all, or at least a net cash position (i.e. more cash on the balance sheet than debt).

The amount of money owed by a company can be found in its latest set of results, although bear in mind that the gap between when this number is calculated and then revealed to the market can be several months.  

2. Failing to adapt

Another huge issue with Debenhams was its failure to adapt to changing consumer tastes quick enough. As more of us moved online to do our shopping, the company saw a significant drop in the numbers of people visiting its tired stores (which also have expensive, long-term leases).

There’s also something to be said for monitoring a retailer’s image among consumers. If you or people you know wouldn’t shop there, why hold its shares? Alternatively, ask yourself whether you’d create the company today if it didn’t already exist. If you wouldn’t, that’s a warning sign.

3. High short interest

I’ve recently become increasingly interested in the activity of short sellers. For those new to investing, these are people bearish on a company’s future and therefore bet on its share price falling. 

Since their losses are technically infinite if a share price jumps, short sellers must be confident in their research. No surprise that Debenhams has been one of the most shorted stocks on the market for some time.

If you’ve purchased any company’s shares without proper research and notice the amount of short-selling has increased, or is high, you may want to question whether it’s a good idea to remain invested.

Get out while you can

Here at the Fool, we’re fans of investing for the long term. Trading shares might sound exciting but it’s actually hard to do well on a consistent basis. Moreover, the high commissions you pay inevitably eat into whatever profit you are able to scratch out. 

Nevertheless, it can sometimes be right to sell if you spot trouble ahead. Taking a loss is painful, but you’ll be thanking yourself if the company later suffers the same fate as Debenhams.

Its shares were priced around 54p two years ago. They were suspended at 1.83p. There was plenty of time to get out and yet many didn’t. Sometimes, it pays to trust your gut.

The post 3 things the Debenhams debacle reminds Foolish investors 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.

2018 was certainly a rollercoaster year for investors. Beginning the year at 341p, JD’s stock pushed through the 500p mark over the summer before falling back 33% by the end of the year. 

Price movement aside, today’s trading update covering the all-important Christmas period is, in my view, yet more evidence why the FTSE 250 constituent is one of the best picks in the sector. 

The company reported “further significant progress” with its overseas expansion — growing sales by 15% in the 48 weeks of the financial year to date.  Total like-for-like sales growth has now hit more than 5%, the company says, “including a consistently positive like-for-like performance across Black Friday and the Christmas period.” While a bit more detail would have been nice, this is still very encouraging stuff, in light of news that trading over the festive period was the worst for 10 years, according to the British Retail Consortium.

In contrast to some companies who have been required to slap heavy discounts on their wares amid the reduction in consumer confidence, JD’s gross profit margins have also been similar to those of last year.

The outlook was also positive. Despite some labour cost inefficiencies as a result of automating and expanding its primary warehouse, JD stated that it was “confident” that pre-tax profit for the full year would come in at the “upper end of published market expectations” of between £325m and £352m. The business also remarked it had been so encouraged by initial sales at its five US stores — following the capture of retailer Finish Line last June — that it has decided to convert up to 15 of the latter’s stores in the first half of 2019. 

On 14 times earnings before this morning, JD Sports wasn’t the cheapest retailer out there. But a solid track record of increasing sales and profits, overseas growth potential, and a savvy management team make this one retailer I would feel confident buying for the long term. 

Less tempting

I’d certainly continue to favour JD over retail peer Sports Direct International (LSE: SPD). 

December’s interim results, summarised here by my Foolish colleague Harvey Jones, were a mixed bag with a huge drop in underlying pre-tax profit (as a result of the House of Fraser acquisition), soothed by a rise in group revenues and gross margins. That said, the gloom within the sector still caused many investors to continue jumping ship.

Having fallen almost 40% since last July, you might expect Sport Direct’s shares to be trading on a rather tempting valuation. In my opinion, this simply isn’t the case. 

On 16 times earnings for the current financial year (ending 29 April), the stock looks pricey considering that operating margins and returns on capital are lower than at JD Sports. The latter also carries more debt and pays nothing out to shareholders in the form of dividends. All this before high street ‘saviour’ Mike Ashley’s questionable spending spree (Debenhams, Evans Cycles and the aforementioned House of Fraser) is even considered.

While it would be quite reasonable to argue that no retailer is safe in the current climate, JD continues to get my vote over its rival. 

The post This quality FTSE 250 growth stock is defying the high street gloom appeared first on The Twelfth Magpie.

More reading

• Still stubbornly in pennies, will the JD Sports share price hit £1 again?
• Your ISA allowance is waiting! 3 dirt-cheap stocks to consider right now
• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• See what £12,000 in explosive JD Sports shares 1 month ago is worth today
• 2 FTSE 100 bargain stocks to buy in June?

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.

Looking ahead, there could be further challenges for the business. Consumer confidence could continue to weaken, while investors may become nervous about Brexit. However, in the long run, the stock could offer turnaround potential, given its improving financial outlook and valuation. Could it therefore be worth buying alongside another recovery share which released an update on Monday?

Improving performance

That company in question is ULS Technology (LSE: ULS). The provider of online business-to-business platforms for the UK conveyancing and financial intermediary markets released its half-year results. They showed a rise in revenue of 3% versus the same period of the previous year, with underlying pre-tax profit increasing 6% to £2.89m.

During the period, it was able to increase market share. It enjoyed particular strength within the remortgage transaction segment, while a continued expansion of its sales team allowed it to focus increasingly on the intermediary market.

ULS Technology is forecast to post a fall in earnings of 5% in the current year, followed by a rise of the same amount next year. Although it trades on a price-to-earnings (P/E) ratio of around 11, it seems to lack an obvious growth catalyst. And with the wider conveyancing sector having the potential for future weakness, it may be a stock to avoid at the present time.

Growth potential

In contrast, Sports Direct is due to deliver an improving bottom line over the next couple of years. Its earnings are expected to rise by 16% in the current year, followed by further growth of 10% next year. Since its shares trade on a price-to-earnings growth (PEG) ratio of around 1.1, they could offer a margin of safety after their recent decline.

Although consumer confidence may be weak, this could provide a catalyst for the company’s financial performance. If consumers become increasingly price-conscious, they may begin to favour stores offering steep discounts and competitive pricing. Sports Direct’s business model is focused on offering value for money on major brands, while also obtaining high margins on its own-brands. As such, it could be one of the stronger performers in the retail sector over the medium term.

While the company has experienced elevated political risk and disappointing operational performance in recent years, it could enjoy a tailwind from changing consumer attitudes. As the Brexit process has the potential to cause uncertainty for consumers in terms of how it may impact on the UK economy in the short run, Sports Direct could prove to be a relatively rewarding, albeit risky, contrarian investment for the long run.

The post Thinking of buying FTSE 250-member Sports Direct after share price slump? Read this now appeared first on The Twelfth Magpie.

More reading

• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• 3 shares to consider buying for the 2026 World Cup

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.

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.

More reading

• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• 3 shares to consider buying for the 2026 World Cup

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.

At face value, Marks shares look cheap right now. With analysts forecasting earnings per share of 26.2p, and dividends per share of 18.7p for the year ending 31 March, The forward-looking P/E is just 11.4, and the prospective yield is 6.3%. However, if you’re thinking of buying the shares, there’s something you really need to know.

High short interest

The thing that concerns me about Marks & Spencer shares is the high level of short interest in the stock at present. According to shorttracker.co.uk, MKS is currently the fourth most shorted stock on the London Stock Exchange. A 10.5% short interest means a number of hedge funds and other sophisticated investors are betting on the company failing, and the share price falling. For this reason, I think it’s worth being very cautious in relation to the stock because we have seen what can happen to highly-shorted shares in the recent past. Just look at Carillion last year, which went into liquidation, and Debenhams this year, which has lost 80% of its value.

To my mind, the big problem with the company is its ailing clothing division, which seems to just consistently underperform. For example, clothing sales in August fell 1.9%, which suggests the group’s strategy is off the mark when you consider that online retailers such as Boohoo are thriving.

As such, I don’t see much appeal in MKS shares right now. I definitely think there are better retail stocks out there. 

Selfridges of sport

Another retail stock that has had a dreadful run recently is Sports Direct (LSE: SPD). Over the last three months, its share price has fallen 24%, meaning that it now trades on a forward-looking P/E of 15. Yet, like MKS shares, I don’t see much appeal in owning the stock right now.

The main problem with Sports Direct for me is the lack of corporate governance. Founder Mike Ashley, who owns over 60% of the shares, is highly unpredictable and this adds significant risk to the investment case. Just last month, Ashley warned that future engagement with shareholders would be “extremely challenging,” which is not really what you want to hear as an investor, is it? It’s no wonder they’ve dumped the stock.

Another issue that concerns me is the group’s strategy. Ashley has stated in recent years that he plans to turn Sports Direct into the “Selfridges of sport”. However, this appears a long way off.

Yes, he’s bought House of Fraser, but I noticed last week that he’s now piling these stores up with cheaper brands that he owns such as Kangol and Firetrap. Personally, I’m not convinced this is the way forward, and I think this will just damage the House of Fraser brand. Furthermore, Sports Direct also has a large stake in Debenhams which, as I noted above, is struggling and has lost 80% of its value in the last year.

So, overall, I’m not convinced SPD is a good stock to buy at present. I see much more appeal in rival JD Sports Fashion.

The post Think Marks and Spencer and Sports Direct shares are bargains? Read this now appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally
• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• 3 shares to consider buying for the 2026 World Cup

The Motley Fool UK has recommended boohoo group. Edward Sheldon owns shares in JD Sports Fashion and 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.

At the same time, the FTSE 100 has gained 10%. Looking ahead, could further underperformance be on the cards for the utility company? Or, does it offer turnaround potential alongside another unpopular FTSE 100 share which released a trading statement on Wednesday?

Uncertain outlook

The company releasing an update on Wednesday was FTSE 250 retailer Sports Direct (LSE: SPD). In a brief statement, it confirmed that trading is in line with expectations. It expects to deliver a rise in underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of between 5% and 15% for the current financial year, excluding the acquisition of House of Fraser. It also confirmed its plan to transform House of Fraser into the Harrods of the High Street.

With the Sports Direct share price having fallen by over 50% in the last five years, it has significantly underperformed the FTSE 100 and many of its retail peers. Political risk has been high for the company, while a weak trading environment has hurt its financial performance.

Looking ahead, the company is forecast to post a rise in earnings of 15% in the current year, followed by further growth of 10% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.6, which suggests that it could offer growth at a reasonable price. As such, and while the retail sector may continue to struggle in the short term due to weak consumer confidence, in the long run the company appears to have a sound investment outlook.

Turnaround potential

Centrica may also offer recovery potential in the long run. The recent announcement of a price cap on variable rate tariffs seemed to improve investor sentiment to some degree, since it was perhaps not as tough as many investors were anticipating. And with the company’s new strategy gradually being implemented, it has the potential to become an improved business which is more efficient than it has been in the past.

With the stock having a price-to-earnings (P/E) ratio of around 13, it seems to offer good value for money after its share price fall. It is expected to report a modest rise in earnings in each of the next two financial years, which could help to improve investor sentiment to some degree.

Clearly, the company is in a period of major change. It is investing heavily at a time when energy companies face the potential risk of nationalisation if Labour wins the next election. This could mean that investors continue to be cautious about its prospects. But if it is able to deliver on its current strategy, then a stronger and more profitable business could emerge. With a dividend yield of 8.3%, its total return potential continues to be high over the long run.

The post Could the Centrica share price underperform the FTSE 100 by another 70%? appeared first on The Twelfth Magpie.

More reading

• 3 cheap FTSE 250 stocks to consider buying before the 2026 World Cup kicks off
• 3 shares to consider buying for the 2026 World Cup

Peter Stephens owns shares of Centrica. 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.

Now though, the company is in the midst of a resurgence which has seen its share price soar to 260p at the present time. Is more growth ahead? Or should investors look elsewhere in the retail sector?

Turnaround

Under its current management team, Tesco is becoming a very different entity to that of previous years. In the past, it had sought to expand its operations into new areas, as well as through international channels. While this had created a larger business, substantial parts of it were inefficient and lacked profit growth potential. In other words, the company had become bloated and lacked direction.

Today, the company is focused on its core operation of being a UK-oriented grocery business. It has invested heavily in its products, as well as in areas such as customer service and the layout of its stores. This has helped it to compete in a crowded marketplace, while a more efficient supply chain and the disposal of non-core assets are set to boost its margins over the next few years.

With Tesco also having purchased cash-and-carry company Booker, it seems to be in an increasingly strong position versus peers. It is expected to report a rise in earnings of 18% this year, followed by further growth of 20% next year. Since it trades on a price-to-earnings growth (PEG) ratio of 0.8 and seems to have a sound strategy, significant share price growth could be ahead.

Improving performance

Also offering an improving outlook in the retail sector is Sports Direct (LSE: SPD). The company reported an improvement in its profitability last week after what has been a challenging period for the business. UK sales are still under pressure, while the company’s reputation is only likely to improve at a relatively slow pace.

Looking ahead though, Sports Direct does appear to have that improving outlook. The company’s bottom line is forecast to increase by 13% this year, followed by further growth of 16% next year. And despite rising by around 30% in the last 12 months, its shares have a PEG ratio of 1.4 at the present time. This suggests that investors are including a margin of safety in its valuation, with mixed past performance being the possible reason.

Clearly, the outlook for the wider UK retail sector remains tough. Sales performance across the industry could come under pressure if consumer confidence remains low. But with what seems to be a solid strategy and recovery potential, Sports Direct could be a worthwhile buy for the long run.

The post Is the Tesco share price heading for 500p? appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

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