While the performance of a number of retail stocks has been hugely disappointing during 2015, the sector still holds tremendous potential for long term investors. Certainly, investor sentiment has been relatively weak, with investors apparently favouring other sectors over retail and, as a result, the likes of Sainsbury’s (LSE: SBRY), Boohoo.Com (LSE: BOO) and Dixons Carphone (LSE: DC) have delivered poor share price performance.
In fact, during the last year, Sainsbury’s has posted a fall in its valuation of over 12% as the supermarket price war has kept the company’s margins tight. In response, Sainsbury’s has changed its pricing strategy so as to make it clearer, simpler and less aggressive than it was in previous years. As such, it has refreshed the brand match marketing campaign so that it only includes a comparison to branded goods at Asda.
This makes sure that shoppers are aware that their brands are competitively priced, but also means that Sainsbury’s has room to widen margins on home brand products which, it could be argued, are of a superior quality than those of Asda. As a result, the new pricing strategy may help to stabilise Sainsbury’s bottom line – even if its top line continues to deliver disappointing levels of growth.
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Looking ahead, Sainsbury’s is expected to post a flat net profit next year and, while that may be difficult for many investors to get excited about, it would represent a marked improvement on its recent performance. And, with its shares trading on a price to book (P/B) ratio of just 0.93, there is significant scope for an upward rerating to take place over the medium to long term.
Surprisingly, Dixons Carphone has also disappointed in recent months, with its share price falling by 1% since the turn of the year. This is disappointing for the company’s investors and comes after the ‘internet of things’ specialist posted a rise in its valuation of 69% in calendar year 2014.
Looking ahead, Dixons Carphone clearly has huge potential to become the ‘go-to’ place for all appliances that are set to become linked in to the internet in future years. As a consequence, the company has huge potential to deliver strong profit growth and, next year, is expected to grow its net profit by as much as 12%. This puts Dixons Carphone on a price to earnings growth (PEG) ratio of just 1.2, which indicates that its shares offer excellent value for money at the present time.
Meanwhile, online fashion retailer Boohoo.Com also appears to be a bargain basement retail opportunity. Its shares have fallen by a whopping 61% since they listed in March 2014 and, while some of the company’s news flow has been somewhat less impressive than many of its investors were anticipating, Boohoo.Com is nevertheless expected to post earnings growth of 42% this year and 25% next year.
This strong growth outlook seems to be turning investor sentiment in Boohoo.Com’s favour. Its shares have risen by 25% in the last six months and, with them trading on a PEG ratio of just 0.8, they appear to have a very appealing risk/reward ratio for long-term investors.
