Are these 2 bargain stocks unmissable buys after rising 25% in a week?

First they crashed, then they soared. Harvey Jones reckons these two turnaround stocks could climb higher still.

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The following two companies have both crashed and lost more than half their value over the past 12 months. However, they are up more than 25% in a single week. Can recent positive momentum continue?

No support

International support services and construction group Interserve (LSE: IRV) has given investors an unwanted rollercoaster ride, amid profit warnings and fears over breached banking covenants. Its stock is down 54% over 12 months, up 28% over the last week, and down 13.54% this morning on publication of its annual 2017 results.

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Today’s report showed a small rise in revenue, from £3.24bn to £3.25bn, but that was almost the only positive number. Total operating profit halved from £155m to £75m, the group’s loss before tax of £94m widened to £244m amid hefty writedowns, while headline earnings per share (EPS) crumbled by two thirds from 84.5p to 29p.

White stuff

Throw in a near doubling of net debt, from £274m to £502m, and you can see why investors are feeling so queasy. Worse, the group’s debt could rise to £680m in the second half, before improving slightly. Investors are ignoring one sign of hope, that the Berkshire-based group has secured full debt refinancing with committed borrowing facilities of £834m, through to 2021

New chief executive Debbie White claims her “fit for growth” plan will deliver an annual benefit of up to £50m to operating profits by 2020, £15m in the current year.

This is an opportunity for fearless contrarians given Interserve’s lowly valuation of just 6.2 times earnings, especially since it has future workload of £7.6bn, following a string of key contract wins in the year. These include the Ministry of Defence, Ministry of Justice, Department of Work and Pensions, Network Rail and the BBC, amid similar success in the Middle East. Interserve, which has a market cap of £132m, is a gamble, but a potentially rewarding one. My Foolish colleague Peter Stephens finds it tempting.

Capita crash

FTSE 250-listed Capita (LSE: CPI) has also left investors with churned stomachs, its share price crashing from 1,326p in July 2015 to just 187p today, down a thumping 85%. However, it is up 24% in the past week. Could this be your opportunity to hop on board for the next upwards swing?

The £1.25bn company’s numbers are absolutely all over the place, with a rock bottom valuation of just 3.3 times earnings, combined with a dizzyingly high yield of 16.9%. Don’t be fooled by that final number, the forecast for 2018 is a rather less rewarding 0%.

Comeback kid?

The recovery process may be slow and we are only in the early stages, as Capita changes its business model and launches a rights issue to generate extra capital. EPS are still expected to crash a massive 44% this year, and another 5% in 2019. Revenues may also dip slightly, although pre-tax profits may pick up a little, suggesting the stock has comeback potential.

Like Interserve, Capita has fallen so low, many will feel that the only way is up. History shows that companies take a long time to recover from such a bumpy ride, so if you are tempted, brace yourself for further highs and lows.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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