Since listing almost one year ago, shares in luxury fashion brand Jimmy Choo (LSE: CHOO) have returned precisely 0%. Clearly, this is hugely disappointing given that the IPO was a major success and was followed by a rise of almost 30% within a matter of weeks.
And, until the concerns surrounding China came to the fore around six weeks ago, Jimmy Choo was still riding high on the back of strong investor sentiment. After all, it is a very strong shoe brand with the potential to expand into new areas and cross-sell all sorts of products to its very loyal customers.
However, China is a key market for Jimmy Choo and investors seem to be nervous regarding its future prospects. Its forecasts, though, remain very positive and the company is expected to post a rise of 23% in its bottom line next year. As such, its price to earnings growth (PEG) ratio of 0.7 holds considerable appeal. That’s especially the case since other designer fashion brands have experienced little if any slowdown in Asia. For example, Ted Baker updated the market with a 31% rise in sales in Asia just a few days ago.
Meanwhile, water services company United Utilities (LSE: UU) has also experienced a tough period of late. Expectations for an interest rate rise in the US and UK have hurt investor sentiment since, with a highly leveraged balance sheet, its profitability may be squeezed by higher interest costs.
The reality, though, is that interest rates are unlikely to rise at a rapid rate and, for most investors, United Utilities remains a highly attractive income option. Not only does it currently yield 4%, its dividends are covered 1.2 times by profit, which indicates that there is some headroom for them to grow in real terms in the coming years. And, with infrastructure still being seen as a relatively appealing space, bid potential remains for stable and resilient businesses such as United Utilities.
However, BT (LSE: BT) does not appear to offer the sound investment case of either Jimmy Choo or United Utilities. Certainly, it’s a rapidly expanding business and its move into mobile and pay-tv could deliver improved profitability in the long run. However, it may be growing too quickly in terms of taking on risk — especially with its having a significant pension liability and relatively high levels of debt.
Furthermore, BT’s strategy is not particularly innovative. Moving into additional media services spaces has been done before and is being undertaken by a number of major telecoms and media companies — BT is not the first to offer a true quad play service. So while its superfast broadband is dominant, due to its aggressive pricing strategy, BT may see its margins come under pressure as high levels of investment mean rising competition within the pay-tv, broadband, landline and (especially) mobile industries.
