The outlook for Tesco (LSE: TSCO) remains decidedly uncertain. The UK supermarket sector is still highly competitive and it would be unsurprising if food price deflation continued over the medium term. As such, many investors may feel that the company is set for a disappointing period of share price performance.
However, Tesco’s strategy could be enough to deliver exceptional share price gains. In other words, even though the external operating environment is likely to be tough, Tesco’s strategy of cutting costs, making asset disposals, improving efficiencies and delivering higher levels of customer service could cause its profitability to rise. And following rising profitability, investor sentiment could gain a boost and push the company’s share price considerably higher.
In fact, Tesco is forecast to increase its bottom line by 39% next year and with its shares trading on a price-to-earnings growth (PEG) ratio of just 0.5, they seem to offer 20%+ upside potential. Certainly, there may be challenges ahead and there’s scope for a downgrade to Tesco’s forecasts, but with a wide margin of safety the company’s risk/reward ratio has huge appeal.
Rising shareholder payouts?
Also offering upbeat share price prospects is voucher and gift card business Park Group (LSE: PKG). Its shares may have disappointed in the past and have fallen by 9% since the turn of the year, but they continue to offer upbeat growth forecasts. For example, in the current year Park Group is expected to record a rise in its bottom line of 8%, with growth of 4% being pencilled-in for next year.
With Park Group trading on a price-to-earnings (P/E) ratio of just 11.7, it seems to offer good value for money. However, in terms of a potential catalyst, the company’s income prospects could entice income-seeking investors to bid up the company’s share price. That’s because Park Group has a yield of 4% and with dividends being covered 2.1 times by profit, there’s scope for shareholder payouts to rise at a faster pace than earnings over the medium-to-long term.
Confident outlook
Meanwhile, cloud computing specialist Redcentric (LSE:RCN) also has a very bright future and could record a share price rise of over 20%. Its bottom line is expected to increase by 15% in the current year and by a further 10% next year as more businesses seek to shift away from traditional IT infrastructure and towards cloud or hybrid systems. As such, Redcentric seems to have a sound long-term growth profile, with it likely to benefit from increasing demand for its services in the coming years.
With Redcentric trading on a PEG ratio of only 1.5, it seems to offer at least 20% upside. And with it expected to increase dividends per share by over 10% next year to give a forward yield of 2.8%, Redcentric’s management team seems to be confident in its long-term outlook.
