Tesco PLC, Talktalk Telecom Group PLC And Mulberry Group PLC: Are They On The Cusp Of Stunning Returns?

Is now the right time to buy these 3 stocks? Tesco PLC (LON: TSCO), Talktalk Telecom Group PLC (LON: TALK) and Mulberry Group PLC (LON: MUL).

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2015 was an incredibly difficult year for Talktalk (LSE: TALK). That’s because it experienced a hacking incident that caused investor sentiment in the company to rapidly decline, sending Talktalk’s share price plunging by 42% over the last six months.

Furthermore, the incident is likely to have caused a drop in customer loyalty and in the prospects for sales growth in the short run. Although the impact of the incident in this regard is impossible to accurately measure, competition within the quad play space is high and it’s relatively straightforward to switch supplier. As such, Talktalk may have lost some of the momentum it had enjoyed from it stealing a march on rivals regarding the diversity of the products it offered.

Looking ahead, Talktalk is forecast to increase its bottom line by 44% in the next financial year. Certainly, there’s scope for a downgrade due to the potential impact of reduced customer loyalty. But with the company’s shares trading on a price-to-earnings growth (PEG) ratio of only 0.3, the risk/reward ratio remains appealing. Due to this wide economic moat, Talktalk appears to be a strong buy despite the relatively high degree of uncertainty regarding its near-term future.

Mulberry – set for growth

Also struggling in recent years has been luxury brand Mulberry (LSE: MUL). It has suffered from implementing price increases that priced out its traditional customer base and now that it has returned to a less ambitious pricing structure, its bottom line is set to reap the rewards.

In fact, Mulberry’s earnings are due to rise by 74% in the current financial year, followed by further growth of 111% in the next financial year. As such, Mulberry trades on a rather appealing PEG ratio of 1.1, which indicates that its shares could be worth buying at the present time.

And with the company’s new Creative Director set to show his first Mulberry collection at London Fashion Week in February, investor sentiment could improve during the year and push the company’s shares higher following their 14% rise over the last year.

On your shopping list?

Meanwhile, the outlook for Tesco (LSE: TSCO) is also upbeat. Clearly, the pending Christmas update could have a significant impact on the company’s short-term share price movement, but looking further ahead Tesco is expected to increase its net profit by 78% in the current year. This puts it on a PEG ratio of 0.2 and indicates that share price growth is likely.

Undoubtedly, Tesco is set to benefit from an improved outlook for UK consumers who are enjoying wage rises in real-terms for the first time in a handful of years. However, the company’s refreshed strategy, which focuses on efficiencies, customer service and a simplified business structure, is also likely to have a positive impact on its financial performance.

With Tesco having a yield of 1.2%, it lacks income appeal at the present time. But with a payout ratio of only 18%, there’s scope for a rapid rise in shareholder payouts in the medium-to-long term – especially if Tesco’s earnings can continue to increase at a fast pace.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of TalkTalk Telecom Group plc and Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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