Will Berendsen PLC, Ricardo plc And Sound Energy PLC Beat The FTSE 100 Over The Next 3 Years?

Should you buy these 3 stocks right now? Berendsen PLC (LON: BRSN), Ricardo plc (LON: RCDO) and Sound Energy PLC (LON: SOU)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On the face of it, today’s 2015 results from textile specialist Berendsen (LSE: BRSN) are rather disappointing. For example, its revenue has fallen by 3% versus the prior year, while its adjusted earnings are down by the same figure. However, this is mostly due to the negative impact of currency translation and if that’s stripped out, Berendsen’s 2015 results are much more positive.

In fact, its top line increased by 3%, while adjusted operating profit benefitted from a rise in margins of 30 basis points to record a rise of 5% versus the previous year. Encouragingly, Berendsen’s return on invested capital rose by 40 basis points to 10.3%, while its free cash flow conversion remains strong at 99% of the adjusted after-tax profit figure.

This upbeat performance has enabled Berendsen to increase its dividend by 5%, which means that it now yields 2.9%. This is lower than the FTSE 100’s yield of around 4%, and with Berendsen trading on a rather rich price-to-earnings (P/E) ratio of 17.7, it appears to be relatively unappealing compared to the wider index and therefore may struggle to outperform the FTSE 100 in the next three years.

High price?

Also reporting today was global consultancy business Ricardo (LSE: RCDO), with the first half of its financial year delivering significant revenue and profitability gains. The company’s top line increased by 31% versus the comparable period from the prior year, with a strong order book of £201m (versus £140m as at 30 June 2015) indicating that its future performance could improve yet further.

In addition, Ricardo is enjoying success in its strategy to diversify the business, with it winning orders from across all geographies and market sectors in which it operates. And with its earnings rising by 31% in the first half of the year, it seems to be on track to deliver on its upbeat growth prospects.

Despite this, Ricardo continues to be rather expensive based on a P/E ratio of 17.3. This indicates that there’s limited upward rerating potential, with a price-to-earnings growth (PEG) ratio of 2.7 showing that even when growth expectations are factored-in, Ricardo may struggle to beat the FTSE 100 over the coming years.

Risky play

Meanwhile, Mediterranean-focused upstream gas company Sound Energy (LSE: SOU) has today announced the mobilisation of a rig for the upcoming first well at its Tendrara licence area, located in Morocco. The rig is due to arrive early next month from its current location in Mauritania.

Furthermore, Sound Energy also announced today that it has received final approval from the Moroccan National Environmental Committee for the first and second Tendrara wells. This means that there are no additional approvals required in order for drilling to commence.

Clearly, today’s news is encouraging and shows that Sound Energy is making progress with its current strategy and plans. As such, it has the potential to beat the FTSE 100 over the next three years, but is highly dependent on news flow during that time, as well as investor sentiment towards the oil and gas sector, which will in turn be heavily influenced by the price of oil.

As such, and while Sound Energy may be worth a closer look for less risk-averse investors, the risk/reward ratio of many other companies could be preferable for long-term investors.

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 has no position in any shares mentioned. The Motley Fool UK has recommended Berendsen. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »