Does this Jim Slater stock pick represent good value right now?

Jim Slater was a fantastic stock-picker. Are these Slater picks still good value?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Jim Slater was truly a giant in the investing world. His book, The Zulu Principle, made growth investing available to anyone and helped reduce DIY investor’s reliance on analysts and their discounted cash flow models.

Ballooning valuation

Back in 2014, writing in The Telegraph, Jim Slater touted Restore plc (LSE: RST) as a buy. The company specialises in document storage, scanning and shredding, to help businesses move into the paperless, digital world.

Since the guru tipped it, the company’s valuation has ballooned from £133m to £416m. I’m going to apply Slater’s famous valuation techniques to this company to see if it’s still good value after today’s trading update.

The company’s priority has been to integrate the acquisitions Wincanton Records Management and PHS Data Solutions, which has seemingly gone off without a hitch. This has led to the expected synergies and trading in-line has been with expectations for the full year.

Analysts expect earnings to come in at 20.75p per share next year and 17.05p per share for this year just ended. Therefore, the company trades on a PE of 21.5 and is expected to grow earnings by 21.7%.

To check if a growth company was good value, Slater used the PEG ratio. He would divide the company’s PE by its earnings growth rate. A result under 1 implied significant value could be on offer. Restore’s PEG ratio is roughly 1, compared to 0.63 when Slater first picked it, indicating there may no longer be enough upside to the shares.

Let’s take a look at another Jim Slater pick.

Rather bullish

Slater mentioned Telford Homes (LSE: TEF) in the same article as Restore, although it’s not performed anywhere near as strongly. Back then, its market cap was £172m. Now, it’s £237m.

The property developer builds homes in central London, where there is a significant demand for extra housing. Telford has confirmed that Brexit has done little to dampen demand, yet still it trades on a PE of only 8 and will offer a yield of around 4.8% if the final dividend grows by as much as the interim.

However, analysts have predicted that Telford’s earnings will fall next year, largely due to a small correction in London property prices. This makes calculating a PEG ratio impossible. That said, I’m not sure Slater would dislike Telford because of just one bad year of growth. Indeed, his original thesis seemed rather bullish on London property.

I believe Slater’s assessment was likely correct. In the next six or so years, a populace nearly the size of Birmingham is expected to pour into London. That’s clearly going to increase housing needs, potentially supporting high prices and catering to Telford.

However, property prices are notoriously difficult to forecast. Interest rate rises would, for example, make debt more expensive, therefore likely resulting in a fall in house prices. Brexit too introduces yet more uncertainty into the equation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »