This week the ‘bargain bin’ of stocks trading at 52-weeks lows is full of new candidates.
Indeed, Communisis (LSE: CMS), Halfords (LSE: HFD) and Rolls-Royce (LSE: RR) have all fallen foul of the market this week, plunging to 52-week lows after issuing poor trading updates.
The question is, are these companies bargains ready to be snapped up, or falling knives that should be avoided?
Missing guidance
Communisis slipped to a new 52-week low this week after the company said its adjusted earnings per share for the full-year will fall slightly short of previous expectations. The weakness can be traced to Life, a shopper marketing agency Communisis brought in January. According to Communisis’ management, Life is taking longer than anticipated to deliver its projected earnings due to contract delays and deferrals.
Still, while Life is holding the group back, all of Communisis’ other operating divisions seem to be performing in line with expectations. What’s more, recent declines have left Communisis trading at a rock-bottom forward P/E multiple of 7.8. Even if earnings do miss expectations by a wide margin, the group’s low valuation should soften the blow.
City analysts are expecting Communisis to report earnings per share of 5.7p for full-year 2015. If earnings come in 21% below expectations, at 4.5p per share, the group’s shares will only be trading at a forward P/E of 10, which is hardly expensive.
Turnaround struggling to gain traction
Rolls-Royce has now issued five profit warnings in the space of a year, which is enough to scare away even the most experienced investor. But despite the group’s troubles, Rolls remains a profitable company and one of the world’s top three makers of aerospace engines.
But it could be some time before the group starts growing again and, as we’ve seen over the past few months, it’s now almost impossible to predict Rolls’ future earnings potential. With this being the case, it might be time to avoid the company for the time being.
Investing for growth
Halfords dropped to a new 52-week low this week after the company reported a 6.3% decline in pre-tax profit for the first-half of its 2016 financial year. Unfortunately, the company also warned that it expects profit in fiscal 2017 to be broadly unchanged on fiscal 2016 as the company invests heavily to try and regain market share.
If Halfords can execute this strategy successfully, then the company could be a good bet at present levels. Indeed, Halfords’ sales are still expanding and investing in stores as well as technology should improve customer retention and profit margins over time.
Cycling is the only part of Halfords’ business that is holding the group back. Like-for-like retail sales for the period increased by 1.4% during the first-half. Sales at autocentres rose 3.3% on a like-for-like basis. Overall, group sales increased 1.7% for the period. Analysts were expecting growth of 3%.
