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.

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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 assessed. 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.

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