Life as an investor in electrical appliances company AO World (LSE: AO) and e-invoicing specialist Tungsten (LSE: TUNG) has been rather challenging in 2015. That’s because both companies have suffered from declining investor sentiment that has caused their share prices to slump by 53% and 68% respectively since the turn of the year.
However, prior to today those figures were even worse, since the share prices of both companies are up by 10% since the market opened this morning. Could this be an opportune moment to buy ahead of further improvements to investor sentiment?
In the case of AO World, my answer is ‘yes’. That’s because the company has released an upbeat trading update, with sales being up 11.2% in the three months to the end of June. This is a welcome result for investors in the stock, since AO World had disappointed in the recent past in terms of its financial performance but, with its long-term strategy seemingly back on track, it should be able to deliver improved performance over the medium to long term.
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In fact, with European expansion set to be a feature of the next few years, now could be a good time to buy a slice of AO World. And, with disposable incomes in the UK rising at a faster rate than inflation for the first time in a number of years, spending on domestic appliances is likely to increase moving forward. As such, AO World is expected to return to profitability on a per-share basis in the current year, before delivering exceptional growth next year. As such, it trades on a price to earnings growth (PEG) ratio of just 0.6, which indicates that its shares offer growth at a very reasonable price.
Furthermore, AO World is continuing to build its brand and has reported an improvement in repeat orders. This could help to differentiate it from its rivals and, with domestic appliance sales being a highly competitive industry, could allow AO World to report higher than average margins in the long run, which would clearly be positive for its investors.
Meanwhile, Tungsten is also at the beginning of a period of potentially improved performance. A recent placing has strengthened its balance sheet and, while it is expected to remain loss-making in the current year and next year, the company’s pre-tax loss is forecast to narrow from £30m last year to around £5m in financial year 2017. And, with Tungsten’s management team remaining confident regarding the potential to grow the company’s top and bottom lines in the long run, investor sentiment could continue to strengthen over the medium term.
However, with the company remaining in the red, now may not be the perfect time to buy a slice of the business. Certainly, it has great potential, but expectations remain rather high and, should there be further challenges ahead then Tungsten’s share price could come under further pressure. As such, it may be prudent to wait for further evidence of the company’s successful march towards profitability before adding it to a Foolish portfolio.
