I reckon the next trading statement from energy colossus Centrica (LSE: CNA) currently slated for Thursday, February 23 could prompt a fresh downleg in the share price.
The British Gas owner gave cause for cheer back in December when it announced the problems created by its slowly-eroding customer base had eased more recently. Indeed, Centrica commented that the number of accounts on its books was broadly flat since the half year.
This will come as some relief to investors as Centrica has come under sustained bombardment from the steady rise of smaller, promotion-led suppliers in recent years. This phenomenon saw British Gas lose almost 400,000 in the six months to June 2016 alone.
But theres little sign that consumers rising demands for cheaper utility bills areabout to dissipate. Indeed, latest data from trade association Energy UK showed a record 4.8m households switched energy provider last year, up 26% from 2015 levels.
And 33% more people changed supplier in December, the body commented, one-in-five of which took their business to a smaller supplier.
Against this backcloth Centrica is finding it increasingly difficult to raise prices to generate profits growth. And Ofgem raised the stakes still further for the so-called Big Six operators by commenting last week that it sees no obvious reason why recent rises in oil and gas prices should be passed onto customers in the months ahead.
Meanwhile, those anticipating a sustained uptick in fossil fuel values and with it a healthy revenues recovery at Centrica Energy could find themselves disappointed as rising US shale production and weak oil demand globally keeps the market oversupplied.
There are clearly many risks to the Citys forecasts of a 7% earnings rebound at Centrica in 2017, a scenario that would end a predicted three annual dips on the spin. And I believe a forward P/E ratio of 13.9 times fails to properly reflect this.
Food for thought
I also reckon the earnings outlook is less than assured for supermarket struggler J Sainsbury (LSE: SBRY).
The London business surprised industry analysts earlier this month after announcing a rare improvement in like-for-like sales, up 0.1% during the 15 weeks to January 7. The news has sent the share price of Sainsburys to levels not seen since last spring.
But recent figures are clearly far too weak to suggest Sainsburys is over the worst. And on top of this, the retailers recent sales uptick still trails the recent performances of its mid-tier rivals.Tesco and Morrisons saw underlying revenues rise 0.7% and 2.9% respectively in the weeks surrounding the festive season.
Clearly Sainsburys still has its back to the wall as competition in the grocery sector heats up. And I believe signs of this stress in the firms next trading statement (slated for Thursday, March 16) could prompt investors to hit the exits once more.
Given the possibility of escalating sales woes, particularly as rising inflation heaps pressure on consumers spending power, I reckon a forward P/E ratio of 13.1 times isnt cheap enough to make Sainsburys an attractive contrarian pick.
Avoid these investment mistakes
The flagging fortunes of Centrica and Sainsbury’s illustrate the huge risks investors face when trying to build their investment portfolios.
Indeed, there are a multitude of traps share investors can fall into, from timing their trades incorrectly to listening to the wrong information. And this is where The Motley Fool can help.
Our crack team of boffins has drawn up a report titled Worst Mistakes Investors Make that outlines the key things you should consider before taking the plunge.
Click here to download the report. It’s 100% free and can be delivered straight to your inbox.