2 stocks with scary growth outlooks

Royston Wild reveals two stocks with dicey profits prospects.

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Rotork (LSE: ROR) found itself trending 1% lower in Tuesday business following the release of half-year trading details.

Such a decline reflects the fact there was nothing particularly terrifying about the valve-builder’s latest update. Having said that, I reckon those seeking robust earnings growth in the near term and beyond should perhaps look elsewhere.

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Rotork announced that organic revenues at constant currencies flatlined between January and June, at £299.7m. As a result, adjusted pre-tax profit slumped 7.5% at stable exchange rates, to £52m.

In more reassuring news, however, the firm announced that its order book at constant exchange rates had rise 16.5% during the first half, to £213m.

Following the results, newly-minted executive chairman Martin Lamb commented that “the slightly more favourable market trends seen towards the end of 2016 continued in the first half of 2017In oil and gas, we have seen an improvement in levels of activity in upstream and although the midstream and downstream sectors remain subdued, there has been a gradual improvement in project activity levels.” 

Meanwhile, Lamb noted that the company had made “steady progress” across the water, power and industrial process markets.

Pump-builder in peril?

Rotork’s stock price slid lower in late July after the sudden departure of chief executive Peter France. The company said that the departure “[followed] a period of reflection by the Board, together with Peter, on the steps required to foster a return to higher growth and margin levels in what is likely to be a generally lower-growth macro environment.”

These steps included bolstering investment in key areas like product innovation and customer service, as well as improving greater efficiencies throughout the business, the firm said.

The outlook for Rotork is clearly uncertain, and not just because conditions in the critical fossil fuel market remain extremely difficult. While Brent values may have sprung back above $50 per barrel in recent sessions, black gold prices will likely find it hard to make much more ground as market oversupply worsens.

The City expects Rotork to enjoy a 7% earnings uptick in 2017, and a 9% rise is slated for next year. Still, I reckon a subsequent forward P/E ratio of 21.8 times fails to reflect the strong possibility of earnings growth disappointing in both the near term and beyond.

On the floor

Carpetright (LSE: CPR) is another London-quoted stock whose growth picture is looking far from assured at the present time.

Tuesday brought another set of worrying numbers from the British retail sector, this time being the turn of the BRC to chime in. The consortium declared that like-for-like sales rose just 0.9% in July, while sellers of non-food items saw takings contract 0.7% year-on-year.

This fresh batch of murky data comes as little surprise as inflation-ravaged shoppers rein in excessive spending, and particularly on non-essential items like furniture. And against this backcloth City analysts expect Carpetright to endure a 7% bottom-line decline in 2017.

The number crunchers are predicting an 18% earnings bounce-back next year, although I can’t help but feel that this is looking a tad optimistic right now. I reckon investors should steer well clear despite the retailer’s low paper valuation of 10.9 times.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Rotork. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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