Turning companies around from disappointing financial performance to superb profitability is never an easy task. After all, there is usually a very good reason for their bottom lines falling, whether that is a change in customer tastes, a recession or poor decisions by management which have caused the business to become uncompetitive. And, even if the right strategy is put in place, it usually takes a considerable amount of time for even the best of companies to mount a successful comeback.
One stock which is very much on the up is AstraZeneca (LSE: AZN). It has endured a very challenging period of time with a number of key, blockbuster drugs coming off patent and being exposed to generic competition. However, it was a poor response by the business which led to its downfall, since it lacked a strong pipeline of new drugs to take the places of the ones which lost patent protection. Furthermore, policies such as a major share buyback were using up vital cash resources which could have been better spent on improving the company’s long term outlook.
However, under a different management team, AstraZeneca has got its house in order. It has embarked on a highly successful acquisition spree, with its sound balance sheet and excellent cash flow being used to bring on board a number of new drugs and potential treatments which, in years to come, could become blockbuster drugs for the business. And, while the company’s share price has soared by 46% since the start of 2013 (while also paying a yield of 6.1% throughout the period), its shares trade on a relatively appealing price to earnings (P/E) ratio of 15.4.
Also making a successful turnaround is high-street food business Greggs (LSE: GRG). It lost its way under previous management, with the business attempting to diversify its offering through more upmarket coffee shops and a range of chilled/frozen foods on sale in supermarkets. In other words, it appeared to lose focus on its core offering but, under a different management team, Greggs has become a more efficient and simple business. For example, it has closed unprofitable stores, improved its supply chain and focused on giving customers what they want: good value food in convenient locations.
Furthermore, today’s update from Greggs is very positive. It has reported strong sales in a low inflation environment and expects its full-year results to be ahead of market expectations. As such, its shares are up by 6% today, making it a gain of 56% since the turn of the year.
However, Greggs is likely to see margins squeezed in future years from the impact of the new living wage. And, while it already pays its staff a higher rate than the minimum wage, for a business which is focused on value it may be unable to pass all of the additional costs on to consumers.
Meanwhile, collectibles company Stanley Gibbons (LSE: SGI) appears to be in need of a turnaround, with its shares slumping by 27% today after a profit warning. It continues to struggle with a slowing Asian economy and, while it states in today’s update that its second half performance will be much better than its first, margins are coming under increasing pressure.
As a result, its short term performance is likely to be rather disappointing and its shares may continue the run which has seen them fall by 62% since the turn of the year. However, Stanley Gibbons remains a financially sound, niche business which has long term potential to recover as the world economy stabilises. And, with it having a price to book value (P/B) ratio of just 0.8, it appears to be worth buying for the long term.
