Do The Risks Outweigh The Rewards For Tesco PLC, DFS Furniture PLC And WM Morrison Supermarkets PLC?

Are these 3 retailers worth buying or selling? Tesco PLC (LON: TSCO), DFS Furniture PLC (LON: DFS) and WM Morrison Supermarkets PLC (LON: MRW).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today’s half-year trading update from furniture company DFS (LSE: DFS) was upbeat and shows that it’s on track to meet full-year expectations.

Encouragingly, DFS maintained good sales growth throughout the first six months of the year, with it reporting gross sales growth of 7% during the period. Part of the reason for this was the implementation of various growth initiatives including a measured programme of store expansion, continued development of DFS’s omnichannel presence and a constant enhancement of its product range.

With DFS forecast to increase its bottom line by 5% in the current year however, its bottom-line performance may be rather underwhelming given the positive macroeconomic outlook for the UK. And with DFS’s shares trading on a price-to-earnings (P/E) ratio of 13.6, they don’t appear to offer particularly enthralling value for money at the present time.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Therefore, with DFS being a cyclical stock that’s highly dependent on a positive external environment in order to deliver profit growth, its risk/reward ratio appears to be somewhat unappealing. As such, it seems to be a stock to watch rather than buy right now.

Consumer confidence

The risk/reward ratio for Tesco (LSE: TSCO) however, indicates that it’s a very strong buy at the present time. Like DFS it’s highly dependent on the changes taking place in the UK economy, with consumers enjoying a period of relief following a long six years-plus period of experiencing a fall in disposable incomes in real terms. Now though, Tesco is set to benefit from higher consumer confidence at just the right time.

That’s because Tesco is implementing a new strategy which, while not without risk, has the potential to transform its offering and deliver exactly what its customers want. That means high levels of customer service, product choice and convenience. With Tesco’s earnings due to rise by 78% this year, its price-to-earnings growth (PEG) ratio of 0.2 indicates that the potential rewards outweigh the risks for long-term investors.

Turnaround plan

Similarly, Morrisons (LSE: MRW) is embarking on its very own turnaround plan and is seeking to go back to its core offering of good quality, local produce at reasonable prices. In essence, Morrisons wants to outmanoeuvre the likes of Aldi and Lidl. It seeks to offer a no-frills-but-good-quality service and this has the potential to resonate well with customers. Allied to this is an efficiency programme that should help to shore up Morrisons’ margins too.

Looking ahead, Morrisons is forecast to post a rise in its earnings of 22% this year. Combined with a P/E ratio of 15.2, this indicates good value for money. While it may take time for the market to warm to Morrisons’ shares after its hugely disappointing recent period, buyers are currently offered a favourable risk/reward ratio for the long term. And in the meantime a yield of 3.3% should keep total returns ticking over.

Amazing Nerd Stock smashes FTSE with 1,346% gains

What makes this company so extraordinary?

It has a cult-like following of nerdy fans who tend to spend lots of money…

potentially handing investors market-beating gains in any economy.

Though past performance does not guarantee future results, last year, this amazing company saw:

  • Double-digit revenue growth - to a total £470,800,000
  • Profits explode 46%
  • Insiders buying a monster £492,000 of shares

…Setting investors up for - what could be - another decade of spectacular returns.

Want to consider joining them?

Then grab this special report: ‘One Top Growth Stock from The Motley Fool’ which includes both the risks and opportunities.

Secure your FREE copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Morrisons and Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Dividend Shares

How a stock market crash could boost investors’ passive income by over 40%

Jon Smith explains how a continued fall in the stock market isn't always a bad thing, especially when it comes…

Read more »

Investing Articles

If an investor put £10k into Greggs shares one month ago, here’s what they’d have today

Greggs shares have had a tough year but Harvey Jones says they're notably cheaper as a result, while the dividend…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Phoenix share price jumps 7.5% on today’s results, but still yields a stunning 9.4%!

Harvey Jones put his faith in the Phoenix share price and this morning was rewarded with a 7.5% jump on…

Read more »

Investing Articles

What’s been going on with the Barclays share price?

The rising Barclays share price reflects confidence in management’s strategy to improve business performance and enhance shareholder returns.

Read more »

Investing Articles

Prediction: in 1 year, the IAG share price could reach as high as…

The IAG share price has almost doubled in the last 12 months, but can this momentum continue in 2025? Zaven…

Read more »

Investing Articles

Prediction: in 12 months, here’s where the Glencore share price could be…

The performance of Glencore’s share price has been lacklustre, to say the least. But could all that change over the…

Read more »

Investing Articles

See how much an investor needs in their ISA to earn a £499 monthly second income

Harvey Jones crunches the numbers to show how it's possible to build a long-term second income by investing in a…

Read more »

Investing Articles

I’m considering buying more of this struggling FTSE 100 stock

This FTSE 100 stock hasn't exactly set our writer's portfolio on fire during the time he's owned it. But Paul…

Read more »