Today I’ll be discussing the outlook for online fashion retailer ASOS (LSE: ASC), housebuilder Berkeley Group (LSE: BKG) and mining company Vedanta Resources (LSE: VED). Would it be wise to invest in any of these today?
Still in fashion
Shares in online fashion retailer ASOS moved higher this morning as it reported strong interim results for the six months to 29 February 2016. Revenues rose to £667.3m, up 21% over the same period last year, while pre-tax profit rose 18% to £21.2m.
The company also revealed that it had achieved a 17% increase in the number of active customers, which now stands at almost 11m, this being attributed to investment in technology and logistics. There was also 21% growth in the number of website visits, and improvements in the average order frequency, basket value and conversion.
Great news for ASOS shareholders, as the shares had already gained over 6% by mid-morning. But I think new investors should be more cautious, ASOS trades on a sky-high rating of 63 times forecast earnings for this year, falling to a still-high 47 for 2017.
The City expects solid growth of 22% and 34% this year and next, but in my opinion this doesn’t justify the very demanding P/E ratio. As I say to my friends: “The bigger the expectation, the bigger the disappointment,” and that means painful share price falls if the company falls short of its expected growth.
Growth and income
Residential housebuilder Berkeley Group will see its financial year come to a close at the end of this month, and although final results won’t be announced until June, the company is optimistic about the numbers. In a trading update last month, it said it sees current year results being at the top end of expectations.
Earnings are set to remain flat this year, but analysts are predicting an impressive 53% rise next year, followed by further 4% improvement for fiscal 2018. The company is also paying out chunky dividends, with 199.17p per share forecast for the year to 30 April, rising to 200p for both 2017 and 2018, offering prospective yields of 6.4% for the next three years.
The shares have taken a tumble over the last few months and have now entered bargain territory, trading on 11.5 times forecast earnings for this year, falling to 7.5, then 7.2 for both fiscal 2017 and 2018. Both bargain-hunters and income-seekers should find the shares appealing and might want to take advantage of the recent share price weakness.
Still lossmaking
India-focused miner Vedanta Resources issued an encouraging trading statement on Monday, as it announced record production for its aluminium, silver, and power generation operations, as well as its Indian copper cathode division. It wasn’t all good news however, with zinc operations outside India producing 27% less zinc, in contrast with its Indian zinc production that was up 3%. The only other division reporting a fall was oil & gas, with average daily oil production down 3%.
Vedanta has been struggling in the past few years, with underlying earnings shrinking year-on-year since 2011. Last year the company reported a pre-tax loss of $5.6bn, and analysts expect it to be lossmaking until at least 2018. I don’t see an investment opportunity here for anyone other than contrarians who may be looking at the massive share price declines over the last few years as a buying opportunity. But that’s certainly not me!
