2016 could be a good year for Carpetright (LSE: CPR).
The firm is proactive in trimming the dead wood from its store estate and seems set on revitalising the Carpetright brand.
On top of that, encouraging recent economic conditions could entice people to spend more on carpet and floor coverings.
A turnaround plan
The firm demonstrates its ruthless approach to dealing with underperforming stores in late Octobers trading update. Over a 25-week period, the company axed 27 branches in Britain and opened five, in Europe, the firm closed four and opened five. That strikes me as decisive action, which bodes well for a positive outcome down the road. Indeed, over the same period total sales were up 2.5% in Britain and 2.7% in Europe before adjusting for currency movements.
The chief executive says Carpetright aims to re-position its brand and he is pleased by the early performance of four trial concept stores in the UK. Change like that could be a catalyst for improving investor total returns. If the firms marketing strategy clicks with customers Carpetright could attract greater footfall through its doors just as people find themselves with more disposable income to spend thanks to rising wages and falling living expenses.
More to come?
In early 2010, the share price stood at about 940p suggesting expectations of a cyclical recovery were high back then, maybe Carpetright can deliver on those expectations after all. The forward figures look good. City analysts following Carpetright expect earning to swell by 25% year to April 2016 and by a further 28% in 2017. At todays share price of 458p, the forward price-to-earnings (P/E) ratio sits at just over 18, which seems reasonable if such double-digit growth figures prove enduring.
If all the ducks line up then Carpetrights shares could end up revisiting previous peaks, and we could see a 100%-plus uplift from here.
Is Barclays cheap?
Barclays (LSE: BARC) net tangible asset value runs at around 289p per share, so todays 230p share price makes the firm look cheap.
Once, a 20% or so discount to assets was all investors needed as justification to pile into banking shares the theory being that discounts appear in tough times and disappear in the good times as share prices rise in a buoyant economy.
Im not so sure that is such a reliable rule to follow these days. though. We are quite a long way from the economic nadir that banks plunged into during last decades financial crisis. The banks have been in recovery mode for years now but still their shares languish. In normal economic times we would be seeing premiums to net asset values by now, Id argue.
I think the persistent low valuations expressed in bank shares like Barclays might be trying to tell us something along the lines of watch out for the next economic downturn. So, despite Barclays progress on profits and change at the top with incoming chief executive Jes Staley, Im avoiding shares in Barclays.
I’d rather take my chances with Carpetright than with Barclays in 2016. However, neither firm measures up in terms of the quality displayed by the companies covered in our analysts’ special reportcalled 5 Shares To Retire On.
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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.