This week the bargain bin of stocks trading at 52-weeks lows is full of new candidates.
The question is, are these companies bargains ready to be snapped up, or falling knives that should be avoided?
Communisisslipped to a new 52-week low this week after the companysaid its adjusted earnings per share for the full-year will fall slightly short of previous expectations. The weakness can be traced to Life, a shopper marketing agencyCommunisisbrought in January. According toCommunisis management, Life istaking longer than anticipated to deliver its projected earnings due to contract delays and deferrals.
Still, while Life is holding the group back, all ofCommunisis other operating divisions seem to be performing in line with expectations. Whats more, recent declines have leftCommunisistrading at a rock-bottom forward P/E multiple of 7.8. Even if earnings do miss expectations by a wide margin, the groups low valuation should soften the blow.
City analysts are expectingCommunisisto report earnings per share of 5.7p for full-year 2015. If earnings come in 21% below expectations, at 4.5p per share, the groups shares will only be trading at a forward P/E of 10, which is hardly expensive.
Turnaround struggling to gain traction
Rolls-Royce has now issued five profit warnings in the space of a year, which is enough to scare away even the most experienced investor. But despite the groups troubles, Rolls remains a profitable company and one of the worlds top three makers of aerospace engines.
But it could be some time before the group starts growing again and, as weve seen over the past few months, its now almost impossible to predict Rolls future earnings potential. With this being the case, it might be time to avoid the company for the time being.
Investing for growth
Halfords dropped to a new 52-week low this week after the company reported a 6.3% decline in pre-tax profit for the first-half of its 2016 financial year. Unfortunately, the company also warned thatit expects profit in fiscal 2017 to be broadly unchanged on fiscal 2016 as the company invests heavily to try and regain market share.
If Halfords can execute this strategy successfully, then the company could be a good bet at present levels. Indeed, Halfords sales are still expanding and investing in stores as well as technology should improve customer retention and profit margins over time.
Cycling is the only part of Halfords business that is holding the group back.Like-for-like retail sales for the period increased by 1.4% during the first-half. Sales atautocentresrose 3.3% on a like-for-likebasis. Overall, group sales increased 1.7% for the period. Analysts were expecting growth of 3%.
After the recent drop, Halfords currently trades at a forward P/E of 11.8 and the shares support a dividend yield of 4%.
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