2015 has been a mixed year for online fashion retailer Boohoo.com (LSE: BOO). It has slumped by 6% since the turn of the year, but this figure is heavily skewed by its poor performance in the first quarter. In fact, over the last six months Boohoo.com is up by 34% and yet still trades on a price to earnings growth (PEG) ratio of only 1.
Looking ahead, Boohoo.com is set to benefit from the increasingly prosperous UK economy as well as its international growth opportunities. Its business model has huge appeal and it is set apart from rival retailers by focusing on its own brand, which not only provides a higher degree of customer loyalty but also means that its margins are generally very high.
Similarly, Debenhams (LSE: DEB) has been focusing on margins rather than sales, with its new strategy of reducing the amount of discounting it undertakes proving to be highly successful. Certainly, it still has a long way to go as a business in terms of being able to win over past customers who have been lost to lower priced rivals, but its forecast earnings growth rate of 2% next year, following last year’s 7% rise in net profit, shows that it is slowly moving in the right direction. With a price to earnings (P/E) ratio of 11.6, Debenhams has considerable upward rerating potential.
Morrisons (LSE: MRW) is also cheap, with the northern-biased supermarket trading on a PEG ratio of only 0.9. Looking ahead, Morrisons appears to have a logical strategy of rationalising its business and streamlining its operations, focusing on its most profitable areas where it has a competitive advantage.
So, while its withdrawal from the convenience store sector is disappointing on the one hand, since is could have been a long term growth opportunity, Morrisons’ bottom line is likely to benefit from a simpler, more focused business model. And, with a dividend yield of 3.3%, which is covered more than twice by profit, it appears to have significant potential as an income stock, too.
Clearly, investing in cash-and-carry company Booker (LSE: BOK) at the start of the year would have been a very wise move — its shares have risen by 14% since the turn of the year But while the business is expected to perform well over the next two years, its shares appear to be fully valued at the present time.
For example, Booker trades on a PEG ratio of 1.8, so despite its bottom line being due to rise by 8% this year, and by a further 13% next year, the prospect for further capital gains appears to be limited when compared to a number of its retail peers. Although Booker has a strong track record of growth, with the UK economy moving from strength to strength its less stable peers could prove to be better options for the long term.
It’s a similar story for online grocery retailer Ocado (LSE: OCDO). It is now a profitable business and can look forward to what is expected to be a purple patch for online grocery retailing, with the proportion of people buying their groceries online expected to rise gradually in the coming years.
While Ocado has an excellent product in terms of offering a prompt, reliable service, its PEG ratio of 3.3 lacks appeal. So, while its profit growth is likely to beat most of its rivals, its share price returns may fail to match the performance of the last year, during which time Ocado has posted a capital gain of 52%.
