Shares in Thorntons (LSE: THT) have risen by 11% today despite there being no significant news flow released by the company. Of course, they remain 20% lower than where they started the year after a rather mixed trading update seems to have hurt investor sentiment somewhat. However, Thorntons could prove to be a surprisingly worthwhile investment at its current price level.
That’s because the UK consumer outlook is very positive, with low inflation, real terms wage rises and an economy that is among the fastest growing in the developed world creating favourable trading conditions for discretionary products companies, such as Thorntons.
And, with its bottom line forecast to rise by 32% next year, it puts the company on a price to earnings growth (PEG) ratio of just 0.2, which indicates that its shares are very undervalued and could make strong gains over the medium to long term.
Shares in PZ Cussons (LSE: PZC) are up 5% today and, as with Thorntons, there has been no significant news flow released by the company. This takes their gain in 2014 to 8.5% but, of course, PZ Cussons’ one major weakness continues to hold it back: a lack of regional diversification.
Clearly, the challenging trading conditions in PZ Cussons’ main market, Nigeria, are an external factor that the company has little or no control over. However, it continues to affect its performance and is a key reason why earnings for the current year are expected to be 3% lower than for last year.
Furthermore, with PZ Cussons trading on a price to earnings (P/E) ratio of 19, it seems to be overvalued given its current level of performance.
While Reckitt Benckiser (LSE: RB) offers a size, scale and level of diversification that is of huge appeal to investors, it remains relatively unappealing at its current price level. Certainly, it has very exciting long term prospects, with the developing world offering the company a vast opportunity to boost its top and bottom lines. However, much of this growth appears to already be priced in to its valuation.
For example, Reckitt Benckiser trades on a P/E ratio of 24.2 which, given its mid-single digit growth forecasts for the next couple of years, seems hard to justify. As such, and while it is undoubtedly a high quality stock, investors may be better off waiting for a pullback in its share price before buying a slice of it.
Even though SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) trades on a rather rich P/E ratio of 22, it still appears to be worth buying at the present time. That’s because, over the next two years, it is forecast to increase its bottom line by 9% and 10% respectively. This is an upbeat rate of growth and is around 50% higher than that of the wider index.
However, what makes SABMiller an appealing stock is the consistency of its business model. It has a very diverse geographical spread, multiple brands and has proven to be a top notch defensive stock in previous years, while also offering above average long term growth prospects. And, with its shares having outperformed the FTSE 100 in the last one, five and ten year periods, it has an excellent track record of outperformance that make it a desirable long-term holding.