Is it time to buy cheap-looking Rank Group shares? 

Rank Group shares show tempting value credentials following a profit warning but a business recovery could be coming.

| More on:
Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.

Image source: Getty Images

Rank Group (LSE: RNK) shares are back down near their pandemic lows of 2020. And it could be a good time for me to buy the stock of this bingo hall operator and gaming-based entertainment provider.

June’s profit warning

On 20 June, the company issued a trading update with a profit warning for the trading year ended on 30 June 2022. The firm expected “softer” performance in its third and fourth quarters from its UK venues. The directors said there had been some improvement after April. But takings were “considerably weaker than expected”.

Rank’s business suffered a lot during the pandemic. And it seems things are taking a long time to get back to normal. Higher-spending overseas customers have been slow to return to the firm’s London casinos. And there’s been “continued softness” in visitor numbers right across the company’s venues.

On top of that, Rank saw a lower-than-average casino win margin in the fourth quarter and cost pressures from inflation. And the bottom line is that the directors estimated operating profit would come in around £40m for the year. Previously they’d predicted a range of between £47m and £55m. So, expectations and the share price took a bit of a wallop. 

Creeping back up

A year ago, the share price stood near 168p and today it’s about 89p. However, it’s been edging a bit higher again since the profit warning. So, could today’s level be a bargain price? Maybe. After all, recovery from the pandemic is ongoing and trading could improve from where it is now. I think the creep higher since June shows that other investors are looking beyond recent trading woes.

City analysts are certainly optimistic. They’ve pencilled in a triple-digit percentage surge in earnings for the current trading year to June 2023. And based on that forecast, the forward-looking earnings multiple is just below seven. Meanwhile, the price-to-book value is around one and the anticipated dividend yield is running at 4.7%. 

That’s a tasty set of value credentials. But it’s always possible for Rank to miss its estimates. Perhaps further operational problems will affect the company. Nevertheless, it often takes recent negative news to create value conditions such as Rank’s now.

Cheap isn’t risk-free

However, even a low valuation is no guarantee of a successful investment outcome for me. All shares carry risks as well as positive potential — even cheap-looking ones.

The company has struggled to grow its earnings since 2018. But I’m optimistic the business could see better times ahead. And the stock tempts me now. I’d be inclined to buy a few of the shares and hold them for at least five years as underlying progress in the business unfolds. 

But it’s not the only consumer-facing stock that’s caught my gaze. I also like the look of retailers Next and JD Sports Fashion.

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 considered so you should consider taking independent financial advice.

Kevin Godbold 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.

More on Investing Articles

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

Are we about to see a raging bull market for shares?

Investor sentiment looks like it's changing and we could be in the early stages of a bull market for shares…

Read more »

Black father holding daughter in a field of cows
Investing Articles

I’m investing just £5 a day in income stock to aim for £8,000 a year in passive revenue!

Income stocks form the core part of my portfolio, offering me passive income with minimal effort. But I'm reinvesting my…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

3 dividend hero stocks for a monthly passive income

This Fool discusses the investment trusts capable of paying him a lifetime of growing passive income to supplement his portfolio…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

PayPal shares are rising again. Is now the time to buy?

After a massive fall, PayPal shares are starting to recover. Edward Sheldon looks at what's going on and discusses whether…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

Is now the perfect time to start buying AIM stocks?

Might it be worth taking on extra risk and buying AIM stocks for the recovery? One of our writers, though…

Read more »

Young female analyst working at her desk in the office
Investing Articles

1 top British growth stock I’d buy now

This growth stock has tripled since October 2020. Roland Head explains why he still wants to buy this quality business.

Read more »

Investing Articles

Should I buy Aviva shares for the dividend in 2022 and 2023?

Aviva shares have soared in value. Yet at current prices the insurer's dividend yields still smash the market average. Should…

Read more »

Close-up of British bank notes
Investing Articles

Forget income bonds! I’d buy these 2 high-yield UK dividend shares

These two UK dividend shares offer significantly more attractive passive income than boring bonds, in my opinion.

Read more »