The share price of language, intellectual property support services and localisation provider RWS (LSE: RWS) declined by around 15% on Tuesday. The company released a half-year trading statement which showed that while it has performed well on an underlying basis, it is being impacted negatively by exchange rate headwinds.
As such, investor sentiment appears to have declined dramatically. Could this make it a stronger investment opportunity than a support services peer which currently resides in the FTSE 100?
Uncertain outlook
In the first half of its financial year, RWS was able to achieve revenue which was in line with expectations. In fact, it increased from £76.6m in the first half of the prior year to £139.6m. The company expects to deliver adjusted pre-tax profit of at least £30m for the first half of the year on a constant currency basis.
However, with the pound strengthening in recent months, it means that the figure could be lower when the impact of currency changes are factored in. An adjusted pre-tax profit of £28.3m is anticipated for the first half of the year when the currency impact is included. Should the currency effect remain as it has been in the first half of the year, the company may miss its profit guidance for the full year.
Despite this, the performance of RWS remains relatively strong. Its acquisition of Moravia has the potential to make a significant impact on its future growth rate. And with growth across its key divisions being strong, it seems to be in a favourable position to generate improving financial performance.
Since the stock is expected to report double-digit earnings growth over the next two years, it appears to be a worthwhile buy. That’s especially the case since it now has a price-to-earnings growth (PEG) ratio of just 1.1. As such, and while its share price could be volatile, it may prove to be a profitable investment.
Solid performance
Also offering upside potential within the support services sector at the present time is G4S (LSE: GFS). The company now seems to be back on track after a challenging period, with its bottom line growing in each of the last two years. More growth is forecast in the current year, with its earnings expected to rise by 8%. This is due to be followed by growth of 9% next year, which puts the stock on a PEG ratio of 1.4. This suggests that it offers good value for money for the long term.
G4S may also prove to be a strong income stock in the long run. It is expected to deliver a 4% dividend yield in the current year. Since dividends are forecast to be covered twice by profit, they seem to be sustainable. And when its growth prospects are factored in, it could become a more desirable income play over the medium term.
As such, and while it may not offer the most exciting business model at a time when investor sentiment is generally upbeat, the company seems to have a solid mix of growth, income and value credentials for those with a long view.
