Shares in car and bicycle seller Halfords (LSE: HFD) have fallen by as much as 9% today after it released a disappointing trading update. It states that the company’s cycling sales have declined in the second quarter of the year and will now be below previous guidance for the period. In fact, they are down 11% on a like-for-like basis versus the same period of last year and Halfords is blaming heavy discounting across the sector as well as poor weather conditions for the lower than expected sales figure.
Despite this, Halfords expects to meet its full-year profit guidance as a result of its margins being towards the upper end of expectations. However, this would equate to a mere 2% growth in the company’s bottom line versus last year which, given the improved outlook for UK consumer spending, would be somewhat disappointing.
Looking ahead to next year, though, Halfords is expecting to post growth in its earnings of 8% and, with the stock trading on a price to earnings (P/E) ratio of just 13.3, this equates to a price to earnings growth (PEG) ratio of 1.7. This indicates that the company’s shares could bounce back over the medium term – especially since the non-cycling parts of the business are trading in-line with expectations.
Of course, with inflation being low and wage growth being positive, UK consumers are enjoying a boost in their spending power for the first time in a number of years. As such, there are a number of enticing opportunities for investors to profit. For example, Morrisons (LSE: MRW) may have struggled in previous years, but is expected to post a rise in its earnings of as much as 20% next year. This, when combined with a P/E ratio of 16.1, equates to a PEG ratio of just 0.8, which indicates that share price growth could be on the cards over the medium to long term. That’s especially the case since Morrisons remains a sound income choice, with its yield standing at 3.4%.
Similarly, Debenhams (LSE: DEB) also offers excellent value for money. It trades on an exceptionally low P/E ratio of 10 and could, therefore, be the subject of a significant upward rerating. A key reason for this is that Debenhams may be set to benefit from a return of customers who had become increasingly focused on price in previous years and had, therefore, traded down to lower priced competitors. However, with disposable incomes on the rise and confidence returning to Debenhams’ potential customer base, the company’s sales numbers may gain a boost from less discounting and a prioritisation of value over price.
However, anticipation of improved sales and profitability figures appear to be more than sufficiently priced in for online grocer Ocado (LSE: OCDO). It trades on a PEG ratio of 2.2, which indicates limited upside and, while the online grocery space has huge potential to grow and is becoming much more profitable, Ocado’s share price has come under pressure in recent months as investors have seemingly become less comfortable with the company’s valuation.
In fact, Ocado’s share price has fallen by 15% since the start of the year and, while it is a well-run business with a bright future, a lower entry point appears to be necessary to merit purchase – especially when there are opportunities such as Morrisons, Debenhams and, to a slightly lesser extent, Halfords, on offer within the consumer goods space.
