Is Aggreko plc a falling knife after dropping 10% today?

Are shares in Aggreko plc (LON: AGK) set for a comeback after today’s decline?

| 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.

One of the challenges facing all companies is how to cope with difficult trading conditions. Power solutions company Aggreko (LSE: AGK) has recorded a share price fall of almost 12% so far today, after experiencing a tough operating environment in 2016. While this has clearly caused disappointment for the company’s investors, it could represent a sound buying opportunity.

Recovery potential

Perhaps the most surprising aspect of today’s results is that full year pre-tax profit is in line with market expectations. While revenue declined by 3% and pre-tax profit was 12% lower at £221m, this was forecast prior to the company’s results release. Investor sentiment seems to have been hurt by the future prospects for the business in what remains a difficult operating environment.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

For example, a low oil price affected a number of Aggreko’s markets, notably North America. This situation could continue in the short run, since the prospects for the oil industry remain uncertain. However, the company is attempting to turn its performance around. It is on track to implement cash savings across the group in excess of £100m, while it is also investing in new technology. Furthermore, a new customer relationship management system has been introduced as part of a broader digitisation and this could help to boost the company’s future financial performance.

Growth potential

In fact, Aggreko is expected to record a rise in its bottom line of 3% in the current year. This is forecast to be followed by growth of 9% next year. Therefore, while its performance in 2016 and in prior years was disappointing, it may offer capital growth potential if investor sentiment improves due to a turnaround in its financial performance.

In terms of the size of potential gains, Aggreko’s average price-to-earnings (P/E) ratio in the last four years has been 16.7. Today. It now trades on a P/E ratio of just 14.7. This means that if its rating reverts to its long-term average and it meets its forecasts for the next two years, the company’s shares could rise by as much as 24%. And with the long-term outlook for the oil industry being relatively positive, now could be a prudent time to buy a slice of the business.

Higher growth option

While Aggreko may have turnaround potential, sector peer HSS Hire (LSE: HSS) could be an even more enticing growth play. The hire company is forecast to record a rise in its bottom line of 85% in the current year, followed by growth of 58% next year. Despite such a high growth rate, it trades on a price-to-earnings growth (PEG) ratio of just 0.2. This indicates that there is significant upside potential on offer over the medium term.

Certainly, a potential slowdown in the UK economy could slow HSS Hire’s progress down somewhat. However, the prospects of Brexit-induced falls in the economic growth rate already appear to have been more than fully factored in to the company’s valuation.

So, while Aggreko could rise by 24% or more, HSS Hire could deliver vastly higher capital gains in the long run.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Peter Stephens has no position in any shares mentioned. 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.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »