This week saw mixed results from retail and leisure operator Intu (LSE: INTU) and instruments and controls company Spectris (LSE: SXS). While the former announced that it was on-track to meet guidance for the full year, the latter stated that its annual results will now be towards the end of market expectations. Still, neither share price moved all that much, with Intu surprisingly being down a couple of percent, and Spectris rising by a similar amount following the results.
Looking ahead, both companies have rather modest growth prospects. In the case of Intu, it is expected to increase its bottom line by 5% in the current year, followed by a rise of 2% next year. That’s lower than the wider market’s growth rate and, despite this, Intu trades at a hefty premium to the FTSE 350. For example, it has a price to earnings (P/E) ratio of 23.3 which, when combined with its growth prospects, equates to a relatively unappealing price to earnings growth (PEG) ratio of 4.6.
Of course, Intu does offer a 4.2% yield and, as its first half results showed, it is moving in the right direction as a business and is benefitting from an improving outlook for the UK economy. For example, leases signed during the first half of the year were (in aggregate) 12% higher than the previous passing rent. However, with such a high valuation, Intu’s share price may struggle to post significant gains over the medium to long term.
It is a similar story with Spectris. It trades on a relatively modest P/E ratio of 15, but its growth prospects are rather modest, too. In fact, it is expected to post a gain of just 6% this year and 7% next year in its earnings, which equates to a PEG ratio of 2. And, with the company stating this week that cost reduction measures and a challenging trading environment are causing profitability to soften, its shares may continue to struggle moving forward, with them being down 6% since the turn of the year.
One stock that does appear to be worth buying, though, is Vodafone (LSE: VOD). Its growth rate is expected to trump those of Intu and Spectris, with its bottom line forecast to rise by 18% next year. And, while some of this growth has already been priced in, with Vodafone’s shares having risen by 19% in the last year, further improvements in the outlook for the UK and European economy could positively catalyse investor sentiment over the medium to long term.
Furthermore, Vodafone still offers excellent value for money at the present time. It trades on a price to book ratio of just 0.9, which indicates that there is significant scope for a share price rise. And, with its product offering set to diversify further with the addition of broadband and further services across the UK, now could be a great time to add a slice of the business to your portfolio.
