A lot of the time, short term share price movements do not make much sense. For example, there can be a company that is performing exceptionally well, with sales, profitability and its financial standing moving along nicely. However, its share price may fail to rise at such a rapid rate, with investor sentiment being somewhat pessimistic about its financial performance.
Similarly, a company can be experiencing a time of great change and in the process of delivering deteriorating profit figures, and still see its share price rise at a faster pace than the wider index.
That’s exactly the situation at BT (LSE: BT-A) at the present time. Certainly, the company has a bright long term future, with its move into mobile completing its commitment to become a quad play operator. Furthermore, it remains a high quality company that could dominate a number of key markets within the UK, thereby improving its longer term margin outlook.
However, at the time being, BT is not performing particularly well, with its bottom line due to fall by 3% in the current year before rising by a rather lowly 5% next year. Despite this, BT’s share price is up by 11% since the turn of the year, with the FTSE 100 being up just 4% during the same time period.
It’s a similar story with consumer goods company, Reckitt Benckiser (LSE: RB). It may have a superb stable of brands and offer exposure to some of the most lucrative markets across the globe, but its financial performance has disappointed during the last two years, and is set to disappoint during the next two years, too. In fact, in 2016, Reckitt Benckiser’s earnings are set to be 3% lower than they were in 2012, which does not appear to merit such impressive outperformance of the wider index this year.
That’s especially the case since sector peer, Unilever (LSE: ULVR), is expected to deliver earnings that are 24% higher in 2016 than they were in 2012 and yet its shares have lagged those of Reckitt Benckiser by 2% this year. Furthermore, Unilever trades at a discount to Reckitt Benckiser, with the former having a price to earnings (P/E) ratio of 21.4 versus 23.9 for the latter. Looking ahead, it would be of little surprise for their valuations to switch over, with Unilever seeming to offer much better value and improved growth prospects than Reckitt Benckiser.
Meanwhile, the likes of Boohoo.Com (LSE: BOO) and Debenhams (LSE: DEB) also offer great value for money. For example, Boohoo.Com trades on a price to earnings growth (PEG) ratio of only 0.6, while Debenhams has a P/E ratio of just 12.5 As such, both stocks appear to offer considerable upside – especially when the UK economy is performing well and consumer spending is on the up due to the deflationary period that is being experienced. Despite this, Boohoo.Com is down 25% this year, while Debenhams is up 25% since the turn of the year.
As such, share prices don’t seem to make a lot of sense in the short run. In fact, as Ben Graham famously said: ‘in the short run, the stock market is a voting machine but in the long run, it is a weighing machine’. As a result, the likes of Boohoo.Com, Debenhams and Unilever seem to be worthy of investment right now.
