Shares in tool hire company Speedy Hire (LSE: SDY) have fallen by as much as 16% today after a profit warning was issued. The key reason for this is the continuation of legacy issues that the company is attempting to overcome, but which are taking longer than anticipated to put right. As a result, performance for the full-year is expected to be weighted heavily towards the second half of the year, with results due to be materially below current market expectations.
Clearly, the news is disappointing for the company’s investors. And while Speedy Hire is attempting to become a more efficient business through improving asset availability, realigning its sales structure and changing its IT processes, any benefits are unlikely to be felt until at least the second half of the current year.
So although the 60% fall in its share price since the turn of the year puts Speedy Hire on an ostensibly tempting price to earnings (P/E) ratio of just 9.8, its shares could come under further pressure in the short run as the market begins to price in what appears to be a difficult year for the business.
Meanwhile, house builder Barratt (LSE: BDEV) is quite the opposite of Speedy Hire. It is enjoying its best performance for many years, with demand for new housing being high and interest rates being at their lowest ever level. As such, the company’s bottom line is marching onwards and upwards, with growth in earnings of 18% being forecast for the current year. This puts Barratt on a forward P/E ratio of just 12.5, which indicates that its shares are likely to continue to beat the wider index over the medium term.
In addition, Barratt seems likely to become a very enticing income play. It is due to yield as much as 4.5% in the current financial year and, with dividends being covered 1.8 times by profit, there is substantial scope for a rise in shareholder payouts in the coming years.
Also having the potential to raise dividends in future is beverages company Diageo (LSE: DGE). For a mature company operating within a mature industry, its payout ratio of 65% is rather modest when compared to a number of its global consumer goods peers. As such, its yield of 3.3% has the scope to rise significantly with, for example, a payout ratio of 80% equating to a yield of 4.1% at Diageo’s current share price.
Clearly, Diageo also has excellent growth potential. Its pivot to emerging markets may be hurting its share price performance in the short run, since economies such as China are posting falling growth rates, but in the long run Diageo is likely to be a major beneficiary of such exposure. With a growing middle class which is seeking established spirits brands, Diageo has superb long term growth prospects which seem to be on offer at a relatively reasonable price via a P/E ratio of 19.4.